Morgan Stanley Upgrades Ameren On Regulatory, Legislative Tailwinds

Regulatory and legislative developments are working to the advantage of Ameren Corp (NYSE: AEE), according to Morgan Stanley.

The Analyst

Analyst Stephen Byrd upgraded shares of Ameren from Underweight to Equal-weight and increased the price target from $55 to $61, suggesting 6-percent upside.

The Thesis

Ameren is poised to report above-average 7-percent earnings per share growth through 2021, thanks to legislative and regulatory developments in Missouri that are panning out better than expected, Byrd said in a Wednesday note.

The analyst forecast further capex upside stemming from increasingly cheap wind power.

The company expects to invest $1 billion through 2023 to modernize the grid due to new legislation, the analyst said. 

With support for renewables in Missouri strengthening, Morgan Stanley sees potential for longer-term growth driven by incremental wind projects.

"We are now incorporating both $1 billion of grid modernization and $1 billion of renewables capex into our base case, driving 10 cents of incremental earnings by 2021 and $2/share of valuation," Byrd said. 

Incorporating the win of a 700-MW wind project in 2020, Morgan Stanley now estimates EPS of $3.45, roughly in line with the high end of the company's 5-7 percent EPS CAGR guidance for 2018-22. Morgan Stanley projects 7-percent-plus growth in 2021. 

The Price Action

Ameren shares have lost 2.7 percent year-to-date.

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