UE STOCK PRICE FLAT OVER PAST YEAR

Union Electric Co. provides electricity and natural gas to about 1.3 million customers in Missouri and Illinois. Earnings have been fairly flat for the past year because of relatively mild weather conditions. UE's common stock price has remained flat as well. Its stock is traded on the New York Stock Exchange (symbol UEP), and it is a member of the S&P 500. UE contributes much to the Heartland, but other electric utility company stocks seem to offer better value.

Can you imagine St. Louis in 1900 to 1901 with more than 30 companies operating generators, setting poles, stringing overlapping power lines, and soliciting customers? Founded in 1902, UE set out to bring order to this madness and prepare for the St. Louis World's Fair scheduled to open in 1904. From that beginning, the company's production capacity grew to 50 megawatts of electricity in 1912. Its capacity today is up to 7,825 megawatts.

UE has grown over the years by acquiring a variety of generating and distribution systems. The most recent move is a merger with Central Illinois Public Service Co. that should be completely approved by the end of 1997. The resulting holding company is to be named Ameren Corp.

More than 6,000 employees are behind UE's complex of power production equipment and supporting facilities. Some 135 of them are employed in Cape Girardeau. Thanks to them, you and I have grown to count on UE as a reliable source of electricity and natural gas.

During the past several months, I have talked with employees of UE and Southern Co. to see how these companies plan to handle deregulation. At this point, it seems that they are not quite certain. UE has proposed a pilot program, as part of its merger plans, to test two different market structures. In one case, customers would have direct access to qualified suppliers. In the other, customers would contract with UE for UE to shop for the best price and pass that price through to consumers. Can we expect more telemarketing?

UE's P/E is 13, about half the market average, and its dividend yield is 6.5 percent, which is more than twice the average of dividend-paying stocks. Based on the market P/E, UE's stock might be expected to trade around $78. My research indicates this stock would be better priced at about $43. At $39, UE's stock seems to be trading very close to its market value.

Utility company capital structures are significantly different from other companies with publicly traded stocks. In addition, utility company stocks are generally purchased for their dividend, and that makes these stocks act more like bonds than stocks. So, P/E is not a good stand-alone measure for them.

If I were looking for an electric utility stock to add to my portfolio for income purposes, there are other stocks I would prefer. They are more underpriced and provide a higher dividend yield, and I am a little more certain of my price estimate. One of them is Entergy Corp. (ETR) at $26 5/16 with a dividend yield of 6.8 percent. I think it should trade around $42. There are others.

Dividend Reinvestment Plan: Yes

Web Site: http://www.ue.com

Bill Walker is president and CEO of Walkrich Investment Advisors and completes a market appraisal of over 5,000 common stocks each week. (Walkrich@mvp.net) (573) 651-9196

The Southeast Missourian does not recommend that readers buy or sell stocks featured in this column, which is provided for informational purposes only.