Ameren Corporation (AEE) released first quarter results and beat the Zacks Consensus EPS estimate of 37 cents by 3 cents with an EPS of 40 cents. However, the results were 14 cents short of the year-ago quarterly EPS of 54 cents.

The decline was based on lower electricity and natural gas sales in the regulated utility businesses, and lower margins in the merchant generation business.

Operational Performance

Revenue remained flat at $1.9 billion with revenue from Electric at $1.44 billion from $1.40 billion in the year-ago quarter. Revenue from gas dropped to $476 million from $521 million in the corresponding period of 2009. Operating expense as a percentage of revenue grew by 110 basis points.

Missouri Regulated Segment

Segmental core earnings in the first quarter of 2010 were $32 million compared to $4 million in the first quarter of fiscal of 2010. This was due to higher demand from the Noranda smelter plant, colder weather and higher sales.

Illinois Regulated Segment

Segmental earnings in the quarter were $35 million compared to $25 million in the year-ago quarter. This was due to higher electric and natural gas deliveries and an improving economy.

Merchant Generation Segment

Segmental earnings were $29 million, a decline from $85 million in the same quarter of previous year. This decline was largely due to lower sales volumes and higher fuel and related transportation costs, as well as higher financing and depreciation expense.

Financial Condition

Ameren reported cash and cash equivalents of $360 million, compared to cash and cash equivalents of $622 million at the end of the first quarter of fiscal 2010. Long-term debt remained at $7.1 billion. The company generated cash of approximately $381 million from operating activities compared to $516 million in the same quarter of fiscal 2009.

The company expects 2010 EPS in the range of $2.20 to $2.60. We are bullish on the stock based on its consistently solid performance. Going forward, the growth momentum will be maintained by higher rates, a strong balance sheet and a relatively cheap earnings-based valuation.

However, headwinds in merchant generation, lower demand for electricity, predominantly coal-based generation assets and pending regulatory cases continue to restrain valuation. Thus we maintain our market Neutral recommendation for Ameren stock.
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