AMEREN CORP (AEE) stock intrinsic value fair value estimate & owner earnings analysis

Ameren is a regulated electric and natural gas utility. Ameren Missouri serves the St. Louis region and much of eastern and central Missouri with power it largely generates itself (coal, the Callaway nuclear plant, gas, hydro and a growing solar and wind fleet); Ameren Illinois delivers electricity and gas in central and southern Illinois; and Ameren Transmission (including the ATXI subsidiary) builds high-voltage lines under federal formula rates with an allowed return of 10.48%. Regulators set prices so that Ameren recovers its costs and earns an allowed return on the plant it has built, which makes the business far more predictable than most, but also means its earnings are largely a function of how much capital it has in service and how fairly regulators treat that capital. How we measure earnings. We start from operating cash flow, strip out swings in working capital, subtract stock compensation, and subtract the spending needed to keep today's system intact. For a utility we use depreciation as that sustaining-spending figure, because regulators set depreciation to match asset lives, and Ameren's capital budget is driven by approved infrastructure plans rather than by year-to-year revenue (which swings with fuel costs that are passed straight through to customers). Everything Ameren spends above depreciation - about $2.5 billion a year on average in 2023-2025 - builds new rate base and is treated below as a growth investment that must be paid for, not as free growth. On that basis owner earnings were $1,425 million ($5.33 per share) in 2024 and $1,764 million ($6.48 per share) in 2025. The 2025 jump of about 22% was flattered by favorable weather and the absence of a 2024 litigation charge, so we do not treat it as the new normal. What changed since our previous estimate, and why. Our previous estimate valued Ameren's earnings after interest and then assumed they would grow about 6% a year without charging for the roughly $2.5 billion a year of new borrowing and share issuance that pays for that growth. It also implicitly assumed Ameren's roughly $21.8 billion of debt could be rolled over forever at today's average cost of about 4.3%. We now value the business before its lenders, charge the full cost of the growth spending, and then subtract what the company owes. That is the main reason our estimates are materially lower than before. The business before debt. Measured before interest, Ameren's cash earnings have run at a fairly steady 5.6% to 6.1% of its net plant in 2021-2024 (6.7% in the unusually strong 2025). We use the 2021-2025 median, 5.85%, applied to the $41.4 billion of net plant in service and under construction at June 30, 2026 - about $2.42 billion a year ($8.68 per share), a level below what Ameren actually produced in 2025 ($2.52 billion). We use 2021 onward because those years reflect today's regulatory mechanisms (Missouri's plant-in-service accounting and the Illinois multi-year rate plan) and follow the one-time refunds of excess deferred taxes after the 2017 tax law. Owner earnings grew about 22% in 2025; our base case assumes essentially no growth in the first year from the existing plant, with growth only arriving as new investment starts earning a year later. What Ameren owes. At June 30, 2026 Ameren had $20.6 billion of long-term debt (including about $459 million of securitized bonds repaid from a dedicated customer charge), $1.2 billion of commercial paper and $129 million of subsidiary preferred stock, less $12 million of cash: $21.9 billion in total. Pension obligations, deferred taxes and leases are not subtracted because their costs already run through the cash earnings above. Much of the debt is long-dated and cheap - for example 2.625% bonds due 2051, 3.43% notes due 2050 and 1.55% bonds due 2030 - averaging about 4.3%. The years of paying less than a 6% cost on that debt until each bond matures are worth about $2.4 billion. Beyond that, when each bond is refinanced at higher rates, most of the added interest is recoverable from customers because interest cost is part of the rates regulators set (directly under the Illinois and federal transmission frameworks, with a lag in Missouri's historical-test-year rate cases). $950 million of parent-company notes mature in 2026 and a $500 million 1.95% note comes due in 2027; nothing in the schedule looks hard to refinance, borrowing stood at 59% of capitalization at year-end 2025 against a 67.5% covenant limit, and cash earnings cover the interest bill about 2.5 times. Growth we credited. Ameren's plans call for $30.5-33.1 billion of capital spending in 2026-2030, including a $20.8 billion Missouri Smart Energy Plan and MISO long-range transmission projects already assigned to Ameren. We credit growth only at the pace Ameren has actually sustained - about $2.5 billion a year above depreciation - for ten years, charging every dollar of it, and credit only the return that investment has been earning. Growth after ten years is not credited. The step-up in spending to the full plan, which depends on new data-center and industrial load that has not yet arrived, is credited only in the bull case. Base case: existing plant earns the 5.85% median return indefinitely under Ameren's exclusive state franchises; $2.5 billion a year of new investment for ten years earns about 7% before interest with a one-year lag; and about 90% of higher refinancing costs is recovered in rates. The business is worth about $42.2 billion, it owes about $16.4 billion after crediting the cheap debt and recoverable refinancing costs, leaving about $25.8 billion, or $92.57 per share. Bear case: returns sit at the weakest recent level (5.62%, as in 2021), reflecting Illinois' 8.72% allowed return on electric distribution staying among the lowest in the country after Ameren's appeals of the December 2023, June 2024 and December 2024 rate orders fail; new investment earns only about 6% with an 18-month lag; and only 70% of higher refinancing costs is recovered because of Missouri's lag. The business is worth about $37.2 billion, it owes about $17.1 billion, leaving about $20.0 billion, or $71.93 per share. Bull case: returns hold at the 6.08% level of 2023 (about the dollar cash earnings Ameren actually delivered in 2025), Ameren spends at its full plan pace of about $4.5 billion a year above depreciation for five years as its large-load customer tariffs and transmission projects proceed, new investment earns about 7.7%, and refinancing costs are fully recovered. The business is worth about $47.7 billion, it owes about $16.1 billion, leaving about $31.6 billion, or $113.51 per share. What could make this wrong. On the downside, a harsher outcome in Missouri rate cases or loss of plant-in-service accounting would lower returns on the bulk of the business, and retirement of the Sioux (2032) and Labadie coal plants requires replacement spending whose returns depend on regulators. On the upside, a sustained return nearer 2025's 6.7% on plant would add roughly $21 per share. Operating cash flow in the first half of 2026 was $1.19 billion versus $1.29 billion a year earlier even though net income rose; we could not fully explain that from the available figures and treat it as timing until more quarters confirm otherwise. The margin-of-safety price is about $70 per share, roughly our bear-case value and about 24% below the base case - a moderate margin for a regulated business whose downside is set mainly by regulators rather than by competition.