Intrinsic value of Ameren - AEE

Previous Close

$59.14

  Intrinsic Value

$44.93

stock screener

  Rating & Target

sell

-24%

  Value-price divergence*

-69%

Previous close

$59.14

 
Intrinsic value

$44.93

 
Up/down potential

-24%

 
Rating

sell

 
Value-price divergence*

-69%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of AEE stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 14.5

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -0.36
  5.60
  5.54
  5.49
  5.44
  5.39
  5.35
  5.32
  5.29
  5.26
  5.23
  5.21
  5.19
  5.17
  5.15
  5.14
  5.12
  5.11
  5.10
  5.09
  5.08
  5.07
  5.07
  5.06
  5.05
  5.05
  5.04
  5.04
  5.03
  5.03
  5.03
Revenue, $m
  6,076
  6,416
  6,772
  7,143
  7,532
  7,938
  8,363
  8,808
  9,273
  9,761
  10,272
  10,807
  11,367
  11,955
  12,571
  13,217
  13,894
  14,604
  15,349
  16,130
  16,950
  17,810
  18,712
  19,659
  20,652
  21,694
  22,789
  23,937
  25,142
  26,407
  27,735
Variable operating expenses, $m
 
  5,092
  5,372
  5,664
  5,970
  6,290
  6,625
  6,975
  7,341
  7,725
  8,127
  8,507
  8,949
  9,411
  9,896
  10,405
  10,938
  11,497
  12,083
  12,698
  13,344
  14,020
  14,731
  15,476
  16,258
  17,079
  17,940
  18,844
  19,793
  20,788
  21,834
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  4,695
  5,092
  5,372
  5,664
  5,970
  6,290
  6,625
  6,975
  7,341
  7,725
  8,127
  8,507
  8,949
  9,411
  9,896
  10,405
  10,938
  11,497
  12,083
  12,698
  13,344
  14,020
  14,731
  15,476
  16,258
  17,079
  17,940
  18,844
  19,793
  20,788
  21,834
Operating income, $m
  1,381
  1,324
  1,400
  1,479
  1,561
  1,648
  1,738
  1,833
  1,932
  2,036
  2,144
  2,299
  2,419
  2,544
  2,675
  2,812
  2,956
  3,107
  3,266
  3,432
  3,606
  3,789
  3,981
  4,183
  4,394
  4,616
  4,849
  5,093
  5,349
  5,618
  5,901
EBITDA, $m
  2,216
  1,594
  1,683
  1,775
  1,871
  1,972
  2,078
  2,188
  2,304
  2,425
  2,552
  2,685
  2,824
  2,970
  3,123
  3,284
  3,452
  3,629
  3,814
  4,008
  4,211
  4,425
  4,649
  4,884
  5,131
  5,390
  5,662
  5,947
  6,247
  6,561
  6,891
Interest expense (income), $m
  358
  360
  405
  453
  502
  554
  608
  664
  724
  786
  851
  919
  990
  1,064
  1,143
  1,225
  1,311
  1,401
  1,495
  1,594
  1,699
  1,808
  1,922
  2,042
  2,168
  2,301
  2,439
  2,585
  2,738
  2,898
  3,067
Earnings before tax, $m
  1,041
  964
  994
  1,026
  1,059
  1,094
  1,130
  1,168
  1,208
  1,250
  1,294
  1,381
  1,429
  1,479
  1,532
  1,587
  1,646
  1,706
  1,770
  1,837
  1,908
  1,982
  2,059
  2,140
  2,226
  2,315
  2,409
  2,508
  2,611
  2,720
  2,834
Tax expense, $m
  382
  260
  269
  277
  286
  295
  305
  315
  326
  338
  349
  373
  386
  399
  414
  429
  444
  461
  478
  496
  515
  535
  556
  578
  601
  625
  651
  677
  705
  734
  765
Net income, $m
  653
  704
  726
  749
  773
  799
  825
  853
  882
  913
  945
  1,008
  1,043
  1,080
  1,118
  1,159
  1,201
  1,246
  1,292
  1,341
  1,393
  1,447
  1,503
  1,563
  1,625
  1,690
  1,759
  1,831
  1,906
  1,986
  2,069

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  9
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  24,699
  26,082
  27,527
  29,037
  30,616
  32,268
  33,995
  35,804
  37,696
  39,679
  41,755
  43,930
  46,209
  48,598
  51,102
  53,727
  56,480
  59,367
  62,394
  65,570
  68,902
  72,397
  76,065
  79,913
  83,951
  88,189
  92,636
  97,304
  102,203
  107,345
  112,743
Adjusted assets (=assets-cash), $m
  24,690
  26,082
  27,527
  29,037
  30,616
  32,268
  33,995
  35,804
  37,696
  39,679
  41,755
  43,930
  46,209
  48,598
  51,102
  53,727
  56,480
  59,367
  62,394
  65,570
  68,902
  72,397
  76,065
  79,913
  83,951
  88,189
  92,636
  97,304
  102,203
  107,345
  112,743
Revenue / Adjusted assets
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
  0.246
Average production assets, $m
  2,168
  2,291
  2,418
  2,550
  2,689
  2,834
  2,986
  3,144
  3,311
  3,485
  3,667
  3,858
  4,058
  4,268
  4,488
  4,718
  4,960
  5,214
  5,480
  5,759
  6,051
  6,358
  6,680
  7,018
  7,373
  7,745
  8,135
  8,545
  8,976
  9,427
  9,901
Working capital, $m
  -1,081
  160
  169
  179
  188
  198
  209
  220
  232
  244
  257
  270
  284
  299
  314
  330
  347
  365
  384
  403
  424
  445
  468
  491
  516
  542
  570
  598
  629
  660
  693
Total debt, $m
  7,834
  8,809
  9,837
  10,913
  12,037
  13,213
  14,443
  15,730
  17,078
  18,489
  19,967
  21,516
  23,139
  24,840
  26,623
  28,492
  30,452
  32,507
  34,663
  36,924
  39,296
  41,785
  44,396
  47,136
  50,011
  53,028
  56,195
  59,518
  63,007
  66,668
  70,511
Total liabilities, $m
  17,596
  18,571
  19,599
  20,675
  21,799
  22,975
  24,205
  25,492
  26,840
  28,251
  29,729
  31,278
  32,901
  34,602
  36,385
  38,254
  40,214
  42,269
  44,425
  46,686
  49,058
  51,547
  54,158
  56,898
  59,773
  62,790
  65,957
  69,280
  72,769
  76,430
  80,273
Total equity, $m
  7,103
  7,512
  7,928
  8,363
  8,818
  9,293
  9,791
  10,311
  10,857
  11,427
  12,025
  12,652
  13,308
  13,996
  14,717
  15,473
  16,266
  17,098
  17,970
  18,884
  19,844
  20,850
  21,907
  23,015
  24,178
  25,398
  26,679
  28,024
  29,434
  30,915
  32,470
Total liabilities and equity, $m
  24,699
  26,083
  27,527
  29,038
  30,617
  32,268
  33,996
  35,803
  37,697
  39,678
  41,754
  43,930
  46,209
  48,598
  51,102
  53,727
  56,480
  59,367
  62,395
  65,570
  68,902
  72,397
  76,065
  79,913
  83,951
  88,188
  92,636
  97,304
  102,203
  107,345
  112,743
Debt-to-equity ratio
  1.103
  1.170
  1.240
  1.300
  1.370
  1.420
  1.480
  1.530
  1.570
  1.620
  1.660
  1.700
  1.740
  1.770
  1.810
  1.840
  1.870
  1.900
  1.930
  1.960
  1.980
  2.000
  2.030
  2.050
  2.070
  2.090
  2.110
  2.120
  2.140
  2.160
  2.170
Adjusted equity ratio
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288
  0.288

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  653
  704
  726
  749
  773
  799
  825
  853
  882
  913
  945
  1,008
  1,043
  1,080
  1,118
  1,159
  1,201
  1,246
  1,292
  1,341
  1,393
  1,447
  1,503
  1,563
  1,625
  1,690
  1,759
  1,831
  1,906
  1,986
  2,069
Depreciation, amort., depletion, $m
  835
  270
  283
  296
  310
  324
  340
  356
  372
  390
  408
  386
  406
  427
  449
  472
  496
  521
  548
  576
  605
  636
  668
  702
  737
  774
  814
  855
  898
  943
  990
Funds from operations, $m
  2,267
  974
  1,009
  1,045
  1,083
  1,123
  1,165
  1,209
  1,254
  1,302
  1,352
  1,394
  1,449
  1,507
  1,567
  1,631
  1,697
  1,767
  1,840
  1,917
  1,998
  2,082
  2,171
  2,264
  2,362
  2,465
  2,572
  2,685
  2,804
  2,928
  3,059
Change in working capital, $m
  144
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  20
  20
  21
  23
  24
  25
  26
  27
  29
  30
  32
  33
Cash from operations, $m
  2,123
  965
  1,000
  1,036
  1,074
  1,113
  1,154
  1,197
  1,243
  1,290
  1,340
  1,380
  1,435
  1,492
  1,552
  1,615
  1,680
  1,749
  1,822
  1,898
  1,977
  2,061
  2,149
  2,241
  2,337
  2,439
  2,545
  2,657
  2,774
  2,897
  3,026
Maintenance CAPEX, $m
  0
  -217
  -229
  -242
  -255
  -269
  -283
  -299
  -314
  -331
  -348
  -367
  -386
  -406
  -427
  -449
  -472
  -496
  -521
  -548
  -576
  -605
  -636
  -668
  -702
  -737
  -774
  -814
  -855
  -898
  -943
New CAPEX, $m
  -2,131
  -123
  -127
  -133
  -139
  -145
  -152
  -159
  -166
  -174
  -182
  -191
  -200
  -210
  -220
  -231
  -242
  -254
  -266
  -279
  -293
  -307
  -322
  -338
  -355
  -372
  -391
  -410
  -430
  -452
  -474
Cash from investing activities, $m
  -2,141
  -340
  -356
  -375
  -394
  -414
  -435
  -458
  -480
  -505
  -530
  -558
  -586
  -616
  -647
  -680
  -714
  -750
  -787
  -827
  -869
  -912
  -958
  -1,006
  -1,057
  -1,109
  -1,165
  -1,224
  -1,285
  -1,350
  -1,417
Free cash flow, $m
  -18
  626
  644
  662
  680
  699
  719
  740
  762
  785
  809
  823
  849
  876
  905
  935
  967
  1,000
  1,034
  1,071
  1,109
  1,149
  1,191
  1,235
  1,281
  1,329
  1,380
  1,433
  1,489
  1,548
  1,609
Issuance/(repayment) of debt, $m
  251
  984
  1,029
  1,075
  1,124
  1,176
  1,230
  1,287
  1,348
  1,411
  1,478
  1,549
  1,623
  1,701
  1,783
  1,869
  1,960
  2,055
  2,156
  2,261
  2,372
  2,489
  2,611
  2,740
  2,875
  3,017
  3,167
  3,323
  3,488
  3,661
  3,843
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  151
  984
  1,029
  1,075
  1,124
  1,176
  1,230
  1,287
  1,348
  1,411
  1,478
  1,549
  1,623
  1,701
  1,783
  1,869
  1,960
  2,055
  2,156
  2,261
  2,372
  2,489
  2,611
  2,740
  2,875
  3,017
  3,167
  3,323
  3,488
  3,661
  3,843
Total cash flow (excl. dividends), $m
  133
  1,610
  1,673
  1,737
  1,804
  1,875
  1,949
  2,027
  2,110
  2,196
  2,287
  2,371
  2,472
  2,577
  2,688
  2,804
  2,927
  3,055
  3,190
  3,332
  3,481
  3,638
  3,802
  3,975
  4,156
  4,346
  4,546
  4,757
  4,977
  5,209
  5,452
Retained Cash Flow (-), $m
  -157
  -409
  -416
  -435
  -455
  -476
  -498
  -521
  -545
  -571
  -598
  -626
  -656
  -688
  -721
  -756
  -793
  -831
  -872
  -915
  -960
  -1,007
  -1,056
  -1,108
  -1,163
  -1,220
  -1,281
  -1,344
  -1,411
  -1,481
  -1,555
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  1,201
  1,257
  1,302
  1,349
  1,399
  1,452
  1,507
  1,565
  1,625
  1,689
  1,745
  1,815
  1,889
  1,967
  2,048
  2,134
  2,224
  2,318
  2,417
  2,522
  2,631
  2,746
  2,866
  2,993
  3,126
  3,266
  3,412
  3,566
  3,728
  3,898
Discount rate, %
 
  7.80
  8.19
  8.60
  9.03
  9.48
  9.95
  10.45
  10.98
  11.52
  12.10
  12.71
  13.34
  14.01
  14.71
  15.44
  16.22
  17.03
  17.88
  18.77
  19.71
  20.70
  21.73
  22.82
  23.96
  25.16
  26.41
  27.73
  29.12
  30.58
  32.11
PV of cash for distribution, $m
 
  1,114
  1,074
  1,016
  955
  890
  821
  751
  680
  609
  539
  468
  404
  344
  288
  238
  193
  154
  120
  92
  69
  51
  36
  25
  17
  11
  7
  5
  3
  2
  1
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Ameren Corporation operates as a public utility holding company in the United States. The company engages in the rate-regulated electric generation, transmission, and distribution in Missouri; and rate-regulated natural gas transmission and distribution businesses in Illinois. It primarily generates electricity through coal, solar, nuclear power, natural gas, methane gas, hydroelectric power, and oil resources. The company serves residential, commercial, and industrial customers. As of February 19, 2016, it had a generating capacity of approximately 10,200 megawatts; and served 2.4 million electric customers and approximately 900,000 natural gas customers. The company was founded in 1881 and is headquartered in St. Louis, Missouri.

FINANCIAL RATIOS  of  Ameren (AEE)

Valuation Ratios
P/E Ratio 22
Price to Sales 2.4
Price to Book 2
Price to Tangible Book
Price to Cash Flow 6.8
Price to Free Cash Flow -1793.4
Growth Rates
Sales Growth Rate -0.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 8.2%
Cap. Spend. - 3 Yr. Gr. Rate 8.4%
Financial Strength
Quick Ratio 0
Current Ratio 0.2
LT Debt to Equity 92.8%
Total Debt to Equity 110.3%
Interest Coverage 4
Management Effectiveness
Return On Assets 3.6%
Ret/ On Assets - 3 Yr. Avg. 3.6%
Return On Total Capital 4.4%
Ret/ On T. Cap. - 3 Yr. Avg. 4.4%
Return On Equity 9.3%
Return On Equity - 3 Yr. Avg. 9.1%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 36.8%
EBITDA Margin - 3 Yr. Avg. 34.6%
Operating Margin 22.7%
Oper. Margin - 3 Yr. Avg. 21.4%
Pre-Tax Margin 17.1%
Pre-Tax Margin - 3 Yr. Avg. 16.2%
Net Profit Margin 10.7%
Net Profit Margin - 3 Yr. Avg. 10.3%
Effective Tax Rate 36.7%
Eff/ Tax Rate - 3 Yr. Avg. 38%
Payout Ratio 63.7%

AEE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AEE stock intrinsic value calculation we used $6076 million for the last fiscal year's total revenue generated by Ameren. The default revenue input number comes from 2016 income statement of Ameren. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our AEE stock valuation model: a) initial revenue growth rate of 5.6% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 7.8%, whose default value for AEE is calculated based on our internal credit rating of Ameren, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Ameren.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of AEE stock the variable cost ratio is equal to 79.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for AEE stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 4.6% for Ameren.

Corporate tax rate of 27% is the nominal tax rate for Ameren. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the AEE stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for AEE are equal to 35.7%.

Life of production assets of 10 years is the average useful life of capital assets used in Ameren operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for AEE is equal to 2.5%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $7103 million for Ameren - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 244.339 million for Ameren is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Ameren at the current share price and the inputted number of shares is $14.5 billion.

Management's discussion and analysis

Ameren, headquartered in St. Louis, Missouri, is a public utility holding company under PUHCA 2005. Ameren’s primary assets are its equity interests in its subsidiaries, including Ameren Missouri, Ameren Illinois, and ATXI. Ameren’s subsidiaries are separate, independent legal entities with separate businesses, assets, and liabilities. Dividends on Ameren’s common stock and the payment of expenses by Ameren depend on distributions made to it by its subsidiaries.

Below is a summary description of Ameren's principal subsidiaries. Ameren also has various other subsidiaries that conduct other activities, such as the provision of shared services. A more detailed description can be found in Note 1 – Summary of Significant Accounting Policies under Part II, Item 8, of this report.

   

Ameren Missouri operates a rate-regulated electric generation, transmission, and distribution business and a rate-regulated natural gas distribution business in Missouri.

   

Ameren Illinois operates rate-regulated electric distribution, electric transmission and natural gas distribution businesses in Illinois.

   

ATXI operates a FERC rate-regulated electric transmission business. ATXI is developing MISO-approved electric transmission projects, including the Illinois Rivers, Spoon River, and Mark Twain projects. ATXI is also evaluating competitive electric transmission investment opportunities outside of MISO as they arise.

Unless otherwise stated, the following sections of Management's Discussion and Analysis of Financial Condition and Results of Operations exclude discontinued operations for all periods presented. See Note 1 – Summary of Significant Accounting Policies under Part II, Item 8, of this report for additional information regarding that presentation.

Ameren's financial statements are prepared on a consolidated basis and therefore include the accounts of its majority-owned subsidiaries. All intercompany transactions have been eliminated. Ameren Missouri and Ameren Illinois have no subsidiaries. All tabular dollar amounts are in millions, unless otherwise indicated.

In addition to presenting results of operations and earnings amounts in total, we present certain information in cents per share. These amounts reflect factors that directly affect Ameren’s earnings. We believe this per share information helps readers to understand the impact of these factors on Ameren’s earnings per share. All references in this report to earnings per share are based on average diluted common shares outstanding for the relevant period.

OVERVIEW

Ameren’s strategic plan includes investing in and operating its utilities in a manner consistent with existing regulatory frameworks, enhancing those frameworks and advocating for responsible energy and economic policies, as well as creating and capitalizing on opportunities for investment for the benefit of 

its customers and shareholders. In 2016, Ameren successfully executed its strategy. Ameren continued to allocate significant amounts of capital to those businesses that are supported by constructive regulatory frameworks. In 2016, Ameren invested $1.3 billion of capital expenditures in its FERC rate-regulated electric transmission and Illinois electric and natural gas distribution businesses.

In 2016, Ameren continued to work to enhance its regulatory frameworks and advocate for responsible energy and economic policies and to create and capitalize on opportunities for investment for the benefit of its customers and shareholders. Ameren Illinois successfully advocated for the FEJA, which improved the constructive regulatory framework for Ameren Illinois' electric distribution business. The FEJA revised certain portions of the IEIMA, including extending the IEIMA formula ratemaking process through 2022. Also, beginning in 2017, the FEJA decouples electric distribution revenues established in a rate proceeding from actual sales volumes by providing that any revenue changes driven by actual electric distribution sales volumes differing from sales volumes reflected in that year's rates will be collected from or refunded to customers within two years. This portion of the law extends beyond the end of the IEIMA in 2022. Further, beginning as early as June 2017, the FEJA will allow Ameren Illinois to capitalize as a regulatory asset and earn a return on its electric energy efficiency investments.

In July 2016, Ameren Missouri filed a request with the MoPSC seeking approval to increase its annual revenues for electric service. Relating to that request, in February 2017, Ameren Missouri, the MoPSC staff, the MoOPC, and all intervenors filed a unanimous stipulation and agreement with the MoPSC. The stipulation and agreement, which is subject to MoPSC approval, would result in a $3.4 billion revenue requirement, which is a $92 million increase in Ameren Missouri’s annual revenue requirement for electric service compared to its prior revenue requirement established in the MoPSC's April 2015 electric rate order. The stipulation and agreement did not specify the common equity percentage, the rate base, or the allowed return on common equity. The new revenue requirement reflects the current actual sales volumes of the New Madrid Smelter, whose operations remain suspended, as well as other agreed upon sales volumes. Excluding cost reductions associated with reduced sales volumes, the base level of net energy costs under the stipulation and agreement would decrease by $54 million from the base level established in the MoPSC's April 2015 electric rate order. Changes in amortizations and the base level of expenses for the other regulatory tracking mechanisms, including extending the amortization period of certain regulatory assets, would reduce expenses by $26 million from the base levels established in the MoPSC's April 2015 electric rate order. The stipulation and agreement contemplates that new rates will become effective on or before March 20, 2017.

Related to ATXI's and Ameren Illinois' FERC rate-regulated transmission businesses, in September 2016, the FERC issued a final order in the November 2013 complaint case which lowered the total allowed return on common equity to 10.82%. The new 

allowed return on common equity has been reflected in rates prospectively from the September 2016 effective date of the order. The FERC is expected to issue a final order in the February 2015 complaint case in the second quarter of 2017. That final order will determine the allowed return on common equity for the 15-month period ended May 2016. That final order will also establish the allowed return on common equity that will apply prospectively from its expected second quarter 2017 effective date, replacing the current 10.82% total return on common equity, which became effective in September 2016.

In October 2016, Ameren’s board of directors increased the quarterly common stock dividend to 44 cents per share, resulting in an annualized equivalent dividend rate of $1.76 per share.

Earnings

Net income attributable to Ameren common shareholders from continuing operations was $653 million, or $2.68 per diluted share, for 2016, and $579 million, or $2.38 per diluted share, for 2015. These earnings were favorably affected in 2016, compared with 2015, by increased Ameren Transmission and Ameren Illinois Electric Distribution earnings, reflecting Ameren’s strategy to allocate incremental capital to those businesses, increased demand due to warmer summer temperatures, higher natural gas distribution rates at Ameren Illinois pursuant to a December 2015 order, and decreased other operations and maintenance expenses. Net income was also favorably affected in 2016, compared with 2015, by an income tax benefit recorded in 2016 at Ameren (parent) pursuant to the adoption of new accounting guidance related to share-based compensation, as well as the absence of a provision recognized in 2015 as a result of Ameren Missouri’s discontinued efforts to license and build a second nuclear unit at its existing Callaway energy center site. Net income was unfavorably affected in 2016, compared with 2015, by the absence in 2016 of MEEIA 2013 net shared benefits, partially offset by the recognition of a MEEIA 2013 performance incentive, decreased Ameren Missouri sales to the New Madrid Smelter resulting from a reduction in operations at that plant, and the cost of the Callaway energy center’s scheduled refueling and maintenance outage. Additionally, earnings were unfavorably affected in 2016, compared with 2015, by increased depreciation and amortization expenses at Ameren Missouri, the absence in 2016 of a January 2015 ICC order regarding Ameren Illinois’ cumulative power usage cost and its purchased power rider mechanism, and decreased Ameren Missouri electric margins resulting from increased transmission charges, net of transmission revenues.

Liquidity

At December 31, 2016, Ameren, on a consolidated basis, had available liquidity in the form of amounts available under credit agreements of $1.5 billion.

Capital Expenditures

In 2016, Ameren continued to make significant investment in its utility businesses by making capital expenditures of $0.7 billion, $0.5 billion, $0.2 billion, and $0.7 billion in Ameren 

Missouri, Ameren Illinois Electric Distribution, Ameren Illinois Natural Gas, and Ameren Transmission, respectively. For 2017 through 2021, Ameren's cumulative capital expenditures are projected to range from $10.4 billion to $11.2 billion. The projected spending by segment includes up to $4.2 billion, $2.6 billion, $1.5 billion, and $2.9 billion for Ameren Missouri, Ameren Illinois Electric Distribution, Ameren Illinois Natural Gas, and Ameren Transmission, respectively.

RESULTS OF OPERATIONS

Our results of operations and financial position are affected by many factors. Weather, economic conditions, energy efficiency investments by our customers and us, and the actions of key customers can significantly affect the demand for our services. Our results are also affected by seasonal fluctuations in winter heating and summer cooling demands. Ameren and Ameren Missouri are also affected by nuclear refueling and other energy center maintenance outages. Additionally, fluctuations in interest rates and conditions in the capital and credit markets affect our cost of borrowing and our pension and postretirement benefits costs. Almost all of Ameren’s revenues are subject to state or federal regulation. This regulation has a material impact on the prices we charge for our services. Our results of operations, financial position, and liquidity are affected by our ability to align our overall spending, both operating and capital, with regulatory frameworks established by our regulators.

Ameren Missouri principally uses coal, nuclear fuel, and natural gas for fuel in its electric operations and purchases natural gas for its customers. Ameren Illinois purchases power and natural gas for its customers. The prices for these commodities can fluctuate significantly because of the global economic and political environment, weather, supply, demand, and many other factors. We have natural gas cost recovery mechanisms for our Illinois and Missouri natural gas distribution service businesses, a purchased power cost recovery mechanism for Ameren Illinois' electric distribution service business, and a FAC for Ameren Missouri's electric utility business.

Ameren Illinois' electric distribution service utility business, pursuant to the IEIMA, conducts an annual reconciliation of the revenue requirement necessary to reflect the actual costs incurred in a given year with the revenue requirement included in customer rates for that year. Recoveries from or refunds to customers occur in a subsequent year. Included in Ameren Illinois' revenue requirement reconciliation is a formula for the return on equity, which is equal to the average of the monthly yields of 30-year United States Treasury bonds plus 580 basis points. Therefore, Ameren Illinois' annual return on equity is directly correlated to yields on United States Treasury bonds. Ameren Illinois and ATXI use a company-specific, forward-looking rate formula framework in setting their transmission rates. These rates are updated each January with forecasted information. A reconciliation during the year, which adjusts for the actual revenue requirement and actual sales volumes, is used to adjust billing rates in a subsequent year.

Ameren Illinois’ and ATXI’s electric transmission service businesses and Ameren Illinois’ electric distribution service business operate under formula ratemaking designed to provide for the recovery of actual costs of service that are prudently incurred as well as a return on equity. Although rate-regulated, Ameren Illinois’ natural gas business and Ameren Missouri do not operate under formula ratemaking. Ameren (parent) is not rate-regulated.

We employ various risk management strategies to reduce our exposure to commodity risk and other risks inherent in our business. The reliability of Ameren Missouri's energy centers and our transmission and distribution systems and the level of purchased power costs, operations and maintenance costs, and capital investment are key factors that we seek to manage in order to optimize our results of operations, financial position, and liquidity.

During the fourth quarter of 2016, the Ameren Companies changed the manner in which performance is assessed and resources are allocated, driven by increasing investment in FERC-regulated electric transmission and Ameren Illinois electric distribution and natural gas distribution businesses, as well as the unique regulatory environment for each jurisdiction. Ameren now has four segments: Ameren Missouri, Ameren Illinois Electric Distribution, Ameren Illinois Natural Gas, and Ameren Transmission, which primarily includes Ameren Illinois Transmission and ATXI. Ameren Missouri has one segment, which includes all of the operations of Ameren Missouri. Ameren Illinois has three segments: Ameren Illinois Electric Distribution, Ameren Illinois Natural Gas, and Ameren Illinois Transmission. Prior-period presentation has been adjusted for comparative purposes. See Note 16 – Segment Information under Part II, Item 8, of this report for further discussion of Ameren’s, Ameren Missouri's, and Ameren Illinois' segments.

Earnings Summary

The following table presents a summary of Ameren's earnings for the years ended December 31, 2016, 2015, and 2014:

 

2016

 

2015

 

2014

Net income attributable to Ameren common shareholders

$

653

   

$

630

   

$

586

 

Earnings per common share – diluted

2.68

   

2.59

   

2.40

 

Net income attributable to Ameren common shareholders – continuing operations

653

   

579

   

587

 

Earnings per common share – diluted – continuing operations

2.68

   

2.38

   

2.40

 

2016 versus 2015

Net income attributable to Ameren common shareholders from continuing operations in 2016 increased $74 million, or $0.30 per diluted share, from 2015. The increase was due to net income increases of $34 million, $22 million, $5 million, and $3 million at Ameren Transmission, Ameren Illinois Natural Gas, Ameren Missouri, and Ameren Illinois Electric Distribution,

respectively. Additionally, the net loss from other businesses, primarily Ameren (parent), and intersegment eliminations decreased $10 million.

In 2015, net income attributable to Ameren common shareholders from discontinued operations was favorably affected by the recognition of a tax benefit resulting from the removal of a reserve for unrecognized tax benefits of $53 million recorded in 2013 related to the divestiture of New AER, based on the completion of the IRS audit of Ameren’s 2013 tax year.

Compared with 2015, 2016 earnings per share from continuing operations were favorably affected by:

   

increased Ameren Transmission earnings under formula ratemaking, primarily due to additional rate base investment. Ameren Transmission earnings also benefited from a temporarily higher allowed return on common equity, recognizing an allowed return on common equity of 12.38% for nearly four months in 2016 as a result of the expiration of the refund period in the February 2015 complaint case (19 cents per share);

   

the absence of a provision recognized in the second quarter of 2015 as a result of Ameren Missouri’s discontinued efforts to license and build a second nuclear unit at its existing Callaway energy center site (18 cents per share);

   

increased demand due to warmer summer temperatures in 2016, partially offset by milder winter temperatures (estimated at 15 cents per share);

   

higher natural gas distribution rates at Ameren Illinois pursuant to a December 2015 order (11 cents per share);

   

an income tax benefit recorded at Ameren (parent) pursuant to the adoption of new accounting guidance related to share-based compensation (9 cents per share);

   

decreased other operations and maintenance expenses not subject to riders or regulatory tracking mechanisms at Ameren Missouri (7 cents per share). This was due, in part, to a reduction in energy center maintenance costs, excluding the cost of the Callaway energy center's scheduled refueling and maintenance outage (discussed below) and reduced electric distribution maintenance expenditures; and

   

increased Ameren Illinois Electric Distribution earnings under formula ratemaking, primarily due to additional rate base investment partially offset by a lower return on equity resulting from a reduction in the 30-year United States Treasury bond yields (2 cents per share).

Compared with 2015, 2016 earnings per share from continuing operations were unfavorably affected by:

   

the absence in 2016 of MEEIA net shared benefits due to the expiration of MEEIA 2013, partially offset by the recognition of a MEEIA 2013 performance incentive (15 cents per share);

   

decreased Ameren Missouri sales to the New Madrid Smelter resulting from a reduction in operations at the smelter (15 cents per share);

   

the cost of the Callaway energy center's scheduled refueling and maintenance outage in 2016. There was no Callaway refueling and maintenance outage in 2015 (7 cents per share);

increased depreciation and amortization expenses not subject to riders or regulatory tracking mechanisms at Ameren Missouri primarily because of electric system capital additions (4 cents per share);

   

decreased Ameren Illinois Electric Distribution earnings resulting from the absence in 2016 of a January 2015 ICC order regarding Ameren Illinois’ cumulative power usage cost and its purchased power rider mechanism (4 cents per share);

   

decreased Ameren Missouri electric margins resulting from increased transmission charges, net of transmission revenues (3 cents per share); and

   

increased other operations and maintenance expenses not subject to riders or regulatory tracking mechanisms at Ameren Illinois Natural Gas, primarily due to increased repairs and compliance expenditures (2 cents per share).

The cents per share information presented above is based on the diluted average shares outstanding in 2015. Pretax amounts have been presented net of income taxes, using Ameren's 2015 statutory tax rate of 39%.

[Source: Form 10-K dated 2017-02-28]

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COMPANY NEWS

▶ ETFs with exposure to Ameren Corp. : August 7, 2017   [Aug-07-17 04:16PM  Capital Cube]
▶ Ameren beats 2Q profit forecasts   [Aug-04-17 11:07PM  Associated Press]
▶ Ameren Corp. Value Analysis (NYSE:AEE) : August 4, 2017   [Aug-03-17 09:46PM  Capital Cube]
▶ Startup companies selected for the Ameren Accelerator   [Jul-28-17 08:00AM  PR Newswire]
▶ ETFs with exposure to Ameren Corp. : July 27, 2017   [Jul-27-17 02:08PM  Capital Cube]
▶ ETFs with exposure to Ameren Corp. : July 17, 2017   [Jul-17-17 01:33PM  Capital Cube]
▶ ETFs with exposure to Ameren Corp. : July 6, 2017   [Jul-06-17 01:36PM  Capital Cube]
▶ ETFs with exposure to Ameren Corp. : June 22, 2017   [Jun-22-17 03:15PM  Capital Cube]
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▶ Ameren Corporation Directors Declare Quarterly Dividend   [Apr-28-17 11:48AM  PR Newswire]
▶ Why these Utility Stocks Look Weak   [Apr-24-17 04:36PM  Market Realist]
▶ Ameren Illinois files for electric rate decrease   [Apr-13-17 01:42PM  PR Newswire]
▶ Traders Are Most Bearish on These Utility Stocks   [Apr-11-17 09:07AM  Market Realist]
▶ Ameren launches energy startup accelerator   [Apr-03-17 11:50AM  at bizjournals.com]
▶ Ameren launches energy startup accelerator   [11:50AM  American City Business Journals]
▶ Ameren names new head of infrastructure unit   [Mar-16-17 03:35PM  at bizjournals.com]
▶ Ameren Corporation Directors Declare Quarterly Dividend   [Feb-10-17 11:47AM  PR Newswire]
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Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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VALUATION THEORY       ASSET ALLOCATION

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