Is Ameren’s 2x Price Rise Compared To Duke Energy Justified?

The stock price for Ameren (NYSE:AEE), a utility company that primarily operates in Missouri and Illinois, is up by roughly 40% since the beginning of 2017.  In comparison, Duke Energy (NYSE:DUK), one of the largest U.S. utilities in terms of customer base, has seen its stock grow by just about 18% over the same time frame. In other words, Ameren’s stock grew at over 2x the rate of Duke’s. This comes despite the fact that Ameren’s revenues declined marginally between 2016 and 2019, compared to Duke, which grew sales by 11%. Duke’s Net Margins were also slightly higher than Ameren’s in 2019. Does that make sense? We don’t think it does and believe Duke is likely a good investment at the moment compared to Ameren, as investors seek the stability and dividends of utility stocks through the economic downturn. Our dashboard analysis Is Ameren’s 2x Price Rise Vs. Duke Energy Justified? has the underlying numbers.

Ameren Benefiting From Improving Regulatory Environment, But Duke’s Valuation And Outlook Are Attractive

Let’s look at the core business prospects of both companies a little more closely. Ameren runs regulated electric and gas utilities in  Missouri and Illinois, serving about 2.5 million electric and around 1 million natural gas customers. The stock has benefited from an improving regulatory environment in Missouri and Illinois, which should help to reduce regulatory lag for rate increases and potentially allow for better returns on investments. The company has also been improving margins, driven by infrastructure improvements.

Duke Energy is one of the largest regulated utilities in the United States, serving over 7.7 million customers in the Midwest, Florida, and the Carolinas. The company provides natural gas via its Piedmont Natural Gas and Duke Ohio operations. There could be a couple of factors impacting Duke’s valuation, versus Ameren and other utilities. We estimate that the company’s Carolinas operations account for over two-thirds of total revenues and the regulatory environment here is generally viewed as less favorable.

That said, we still believe Duke’s business looks quite attractive compared to Ameren’s at current prices. Duke trades at just 16.5x 2019 earnings, compared to 21x for Ameren. Moreover, Duke’s growth outlook could also improve. The company plans to invest roughly $56 billion between 2020 and 2024, with spending likely to be targeted at regions with expanding populations. Given the low-interest-rate environment, this could help the company’s overall earnings and dividend growth.