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Ameren reported second-quarter operating earnings per share of $1.13, up from $1.01 in the same year-ago period, putting the company on track to meet our and management's expectations.

Why it matters: Higher customer rates from constructive regulatory outcomes and growth investments supported results. Management reaffirmed 2026 EPS guidance of $5.25-$5.45, in line with our estimate. Management extended its 6%-8% annual earnings growth estimate to 2030. We expect the company to achieve the high end of the range.

The bottom line: We are maintaining our $108 fair value estimate for Ameren. Our narrow moat rating remains unchanged. Ameren trades in line with our fair value estimate and our US utilities sector valuation as of July 31.

Long view: Ameren's $31.8 billion 2026-30 capital investment plan supports our earnings forecast and nearly 11% rate base growth. Ameren has signed 2.8 gigawatts of electric service agreements in Missouri, up 600 MW from last quarter. Management reports an additional 600 MW of opportunities without an ESA and 4 GW of proposed projects undergoing interconnection studies, highlighting the breadth and length of the data center opportunities in Missouri. The projects with signed ESA are upside to management's earnings growth outlook. Ameren has filed certificates of need for 3 GW of new generation to support demand growth, featuring a mix of natural gas, solar, and battery storage. Ameren's transmission unit was recently awarded two competitive transmission projects.

Coming up: Ameren will submit an updated integrated resource filing in Missouri later this quarter. In the fourth quarter, we expect Ameren to update investors on its long-term and growth investment opportunities, which we think have upside. Ameren Missouri filed a rate case in June requesting a 10.25% allowed return on equity and a $343 million revenue increase. We expect a constructive outcome in line with our view of the improved regulatory environment in the state.

Our fair value estimate is $108 per share after incorporating year-to-date financial results and regulatory updates. We also updated our cost of capital methodology.

We assume Ameren will invest $32 billion during the next five years, in line with management's current plan. We expect the company to earn a return in line with its allowed returns across its subsidiaries.

Our annual average earnings growth outlook is at the high end of management's 6%-8% guidance. Our earnings estimates and fair value estimate incorporate recent regulatory decisions.

In our discounted cash flow valuation, we use a 5.8% cost of capital based on a 7.0% cost of equity. This is below the 9% return investors expect for a diversified equity portfolio, reflecting Ameren's lower economic-cycle sensitivity and lower leverage.

We assign Ameren a Narrow Morningstar Economic Moat Rating.

Improvements in the regulatory environment have changed our view of Missouri. Shareholders have benefited under new legislation in Missouri, where numerous trackers are in place for fuel adjustments, pensions, and tax positions. We consider these mechanisms to be attributes of a constructive regulatory environment.

While regulation in Missouri has improved, regulation for Ameren's Illinois utilities is challenging. Performance-based ratemaking in Illinois for Ameren's electric utility expired in 2023. Utilities may now opt in for a four-year rate plan. Under the multiyear plan, utilities are allowed to true up differences between earned returns and allowed returns. Revenue will continue to be decoupled from usage.

While we view the new ratemaking as constructive, regulators have granted returns on equity that are well below the sector average and challenged what the utilities consider prudent investments. Management has managed through regulatory challenges well, wisely directing capital toward Missouri and to transmission opportunities, helping to protect shareholder returns. This gives us confidence that management will continue to earn its regulatory allowed returns.

We believe Ameren’s transmission assets are moaty. Competitors have little incentive to build competing transmission lines if one that Ameren owns already is serving a market's full capacity. Capital costs for new transmission lines are too high and incremental benefits too low to offer sufficient returns on invested capital for two competing transmission owners. In addition, Ameren benefits from regulatory protection. The Federal Energy Regulatory Commission approves new transmission lines only if there is a demonstrated need for new capacity.

Ameren's regulated utilities provide stable earnings. The company's large capital expenditure plan should drive above-average rate base and earnings growth for the next several years.

Ameren's regulatory relationships have improved significantly in Missouri.

Ameren's management team has proved to be best-in-class operators, diligently working to improve regulatory relationships and execute on substantial growth projects.

Regulators have made Ameren's Illinois utility regulatory environment challenging.

Given its large investment program, Ameren will require frequent rate increases that will require continued support from regulators.

As with all regulated utilities, rising interest rates will raise financing costs and could make the dividend less attractive for income investors.