AEE Ameren
Solid regulated utility earning its allowed return, but priced 2.1x book with no margin of safety.
The story
Ameren is a quality multi-state regulated utility (Missouri/Illinois) with constructive rate cases and steady capex deployment driving rate-base growth. Trailing ROE of 11.4% sits slightly above typical allowed returns; normalizing to ~10% reflects regulatory reality and mean-reversion from recent favorable outcomes. Balance sheet is investment-grade with manageable leverage and no imminent credit stress.
Holding ROE at 10% — in line with allowed regulatory returns — as trailing 11.4% reflects favorable timing and should mean-revert. Terminal growth nudged up to 4.5% (still below risk-free) given visible capex pipeline and constructive regulatory frameworks in both jurisdictions. Beta unchanged at industry anchor.
Value drivers
| Return on equity (normalized) | 10.0% |
| Book-value growth (Y1) | 4.5% |
| Terminal book growth | 4.5% |
| Beta | 0.52 |
| Failure probability | 1.0% |
| Cost of equity | 7.3% |
Valuation bridge
| PV of excess returns | 2.99B |
| PV of terminal excess | 7.72B |
| Equity value | 23.87B |
| ÷ shares → per share | $86.22 |
News
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- Ameren (AEE) Could Be 9% Undervalued Following Its Dividend Decision
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Projected excess returns on equity
| Yr | Book equity | ROE | Excess return | PV |
|---|---|---|---|---|
| 1 | 13.40B | 10.0% | 363.57M | 338.88M |
| 2 | 14.00B | 10.0% | 379.93M | 330.07M |
| 3 | 14.62B | 10.0% | 396.73M | 321.25M |
| 4 | 15.26B | 10.0% | 413.95M | 312.43M |
| 5 | 15.91B | 10.0% | 431.59M | 303.63M |
| 6 | 16.57B | 10.0% | 449.65M | 294.84M |
| 7 | 17.25B | 10.0% | 468.10M | 286.09M |
| 8 | 17.95B | 10.0% | 486.94M | 277.40M |
| 9 | 18.66B | 10.0% | 506.15M | 268.76M |
| 10 | 19.38B | 10.0% | 525.72M | 260.19M |
Key risks
- Regulatory disallowance on capex in Missouri or Illinois rate cases
- Rising interest rates compressing valuation multiple further
- Coal plant retirement costs and energy transition capex execution risk
Catalysts
- Approving rate cases with ROE allowances at or above 10%
- Federal infrastructure/clean energy incentives accelerating capex deployment
- Declining interest rates expanding utility valuation multiples