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Strategies & Market Trends : Value Investing
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To: Paul Senior who wrote (34724)6/10/2009 12:57:06 PM
From: E_K_S  Read Replies (1) of 78748
 
Hi Paul -

I briefly looked at AEE and do not like their electrical power fuel mix. Their power plants operated by their different subsidiaries (both regulated & non regulated) fuel type ranges from 85%-100% coal with nuclear making up from 0%-15% and NG & Other less than 1%. (Note: The company has five operating subsidiaries 4 regulated: Ameren, Missouri,CILCO & EEI and one non regulated: Genco)

The company has already set aside monies for the proposed carbon tax credits and according to their annual report will require significantly more dollars to be set aside w/o any detail as to how they plan to recover these expenses (ie higher rates?).

The one positive I see is they plan to double their nuclear electricity output by building a 2nd generation unit on the site where their one active plant is now producing. No regulatory papers have been filed and the earliest it could come online is 2018.

Even though the company has had good growth over the last five years both EPS % and Dividend % have been negative.
(data from Reuters: reuters.com )

Growth
  	       1 Year 	  3 Years      5 Years
Sales % 	 3.66 	   4.96 	11.21
EPS %   	-3.36 	  -2.72 	-1.72
Dividend % 	-39.37   -15.36 	-9.52

Perhaps with PE expansion and reversion to a higher PE mean value based on the past consumption of coal w/o carbon tax credits, the company could be seen as slightly undervalued. However with the unknown treatment of the carbon tax issues, I will stay away from this one.

There are many other "hybrid" utilities that utilize a higher percentage of NG which to me provides a cleaner and cheaper operating cost per MW (based on current NG prices) than coal.

Also, I agree with you on utilities located in Michigan and even Ohio (to a lesser extent). These utility companies could very well be at the same prices 3-4 years out as overall electricity usage contracts and per share earnings (and dividend payouts) shrink. This may be a region to look at in 24-36 months but not now.

EKS
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