Analysts say Ameren could be a target for Buffett
Monday, April 4, 2011
In the financial-analysis world, figuring out Warren Buffett's next move has become an industry of its own. According to Bloomberg, The latest bit of speculation has his Berkshire Hathaway looking to expand in the utility industry, with St. Louis' Ameren named as one of the possible targets.
The speculation comes from CreditSights, a debt analysis firm. In a research note, CreditSights mentions several utilities as candidates for acquisition by MidAmerican Energy Holdings, a subsidiary of Berkshire Hathaway. Besides Ameren, the potential targets are Pinnacle West Capital, NV Energy and Center Point Energy.
MidAmerican's chairman, David Sokol, resigned last week amid revelations that he had made a personal investment in Lubrizol, a company that Berkshire is buying. CreditSights analysts Dot Matthews and Scott Greenstein say, however, that the resignation shouldn't dull Buffett's appetite for acquisitions:
As long as the Sokol situation does not spiral out of control, we believe MidAmerican will bid on a U.S. utility.Bloomberg also cites a statement in Berkshire's annual report as bolstering the analysts' thesis:
MidAmerican is positioned to increase investments because the unit "retains all of its earnings, unlike other utilities that generally pay out most of what they earn," Buffett said in February in his annual letter.Off the top of my head, I can think of one big reason why Ameren might be attractive to Buffett: It's cheap. The shares trade for just 10 times last year's earnings, and 12 times this year's estimated profit, according to Bloomberg.
On the other hand, Ameren operates in a tough regulatory environment -- the Missouri Public Service Commission has been fairly stingy with rate increases -- and isn't seeing much growth in electricity demand.
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