We view the proposed merger of Exelon Corporation (EXC) with Constellation Energy (CEG) in a positive light as it is set to create the nation's cleanest power generation fleet and provide with opportunities for commercial solar energy development, while also focusing on increasing efficiency.
However, Exelon's dependence on the price fluctuations in the wholesale power markets for its financial performance plus the potential regulatory and political risks related to its utility businesses, which could affect the valuation and earnings of its regulated businesses, keeps us Neutral on the company.
Exelon is the nation's largest nuclear fleet operator, having a strong balance sheet and high-return Merchant Energy segment. The Japan atomic debacle raised doubts regarding nuclear safety and future construction, but the approval of the U.S. Nuclear Regulatory Commission to boost Exelon’s nuclear generation capacity in two of its units suggests that the company’s nuclear plants are in sound condition and can safely add more generation to its existing nuclear capacity.
Despite these positives, Exelon also needs to cope up with the erratic weather in its service territories, along with its exposure to commodity price risk associated with the unhedged portion of its electricity generation, pending rate cases and depressed margins at Exelon’s generation fleet, which makes us retain a cautious stance on the company.
The first quarter 2011 earnings result of the company was $1.17 per share, which surpassed both the year-ago quarter's performance and the Zacks Consensus estimates. During the earnings the company provided earnings per share estimates for second quarter and fiscal 2011, which were in the range of 90 cents to $1.00 and $3.90 to $4.20 respectively.
The Zacks Consensus Estimate for second-quarter 2011 is 97 cents per share. For full years 2011 and 2012, the Zacks Consensus Estimates are, respectively, $4.08 and $3.03 per share.
Exelon Corporation currently retains a Zacks #3 Rank (short-term Hold rating). The company competes with Ameren Corporation (AEE) and PPL Corporation (PPL).
Based in Chicago, Illinois, Exelon Corporation, a utility services holding company, engages in the generation, transmission, distribution and sale of electricity to residential, commercial, industrial and wholesale customers.
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