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Topic: Growth Stocks

Ameren Corp. $52 – New York symbol AEE

AMEREN CORP. $52 (New York symbol AEE; WSSF Rating: Average) has 2.3 million electric customers and 900,000 natural gas customers in Missouri and Illinois.

The company aims to cut its operating costs over the next three years by $65 million, mainly by cutting finance and administrative staff. To put this target in context, Ameren earned $280 million in the three months ended September 30, 2005, up 20.7% from $232 million a year earlier. However, per-share profit grew just 14.2%, to $1.37 from $1.20, due to more shares outstanding. Revenue jumped 46.2%, to $1.9 billion from $1.3 billion, mainly due to last year’s acquisition of Illinois Power Company.

Coal supplies about 85% of Ameren’s fuel needs, but rising prices and environmental concerns have prompted the company to consider building a second unit at its 21-year old nuclear power facility west of St. Louis. The project would cost at least $2 billion, and take at least 10 years to complete. Although companies often underestimate the cost of complex projects, Ameren did design the current plant to make it easier to add more units.

Nuclear plants cost more to run than conventional ones, but they would cut Ameren’s reliance on coal. The stock trades at 16.4 times its likely 2005 profit of $3.17 a share. The $2.54 dividend yields 4.9%, but rising capital expenditures could also make it difficult for Ameren to raise it for a year or two.

Ameren is a buy.

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