Ameren 'Could Be Relatively Challenged From Tax Reform,' Says Morgan Stanley

Ameren Corp AEE missed on third-quarter earnings estimates Nov. 3.

The Analyst

Morgan Stanley's Stephen Byrd downgraded the power company from Equal-weight to Underweight and left the price target for the stock unchanged at $61.

The Thesis

Both the House and Senate tax reform proposals would have a negative impact on Ameren Corp, Byrd said in a Wednesday note. (See Byrd's track record here.) 

Ameren has substantial holding company debt and it has been using net operating losses or tax losses to improve cash flow, Byrd said. This has allowed the company to finance growth without issuing equity, according to Morgan Stanley. 

Despite the potential negative impacts, the stock has outperformed the PHLX Utility Sector UTY by 6 percent this year and it seems that the market is now pricing in either a favorable regulatory outcome in the Missouri legislature in 2018 or incremental renewable energy projects in the state, the analyst said. Either outcome has a low probability, he said.  

Ameren Corp is trading with a 2-percent premium to its peers, Byrd said. The risk-reward is unattractive at current levels, as the stock lacks a high probability catalyst to support 2017 performance, he said. 

The Price Action

Ameren, which has gained around 20 percent year-to-date, closed down slightly Wednesday at $61.25.