On Sep 26, we have issued an updated research report on Exelon Corporation (EXC). The utility provider’s stable financial position, systematic investments in inorganic and organic growth project, and focus on expanding renewable asset base are expected to drive its forthcoming performance. However, we are concerned about stringent government regulations and commodity price volatility, which might deter growth substantially.
Exelon’s earnings and revenues in the second quarter of 2014 surpassed the Zacks Consensus Estimate, primarily on the back of higher sales from Commonwealth Edison Company and Generation businesses. However, the bottom line decreased year over year mainly due to a decline in realized prices, and higher operations and maintenance expenses.
Exelon maintains a stable liquidity position. As of Jun 30, 2014, the company had a cash balance of $1.36 billion and $6.3 billion available under credit facilities. Such a strong financial profile will support Exelon’s ongoing growth projects.
Exelon is currently following an acquisition-driven growth strategy. In Jul 2014, the company entered into an agreement to acquire Integrys Energy Services Inc. from Integrys Energy Group, Inc. (TEG). Upon customary approvals, the transaction will likely be completed between fourth-quarter 2014 and first-quarter 2015. It will allow the company to strengthen its retail power and gas operations.
Exelon is also working on the acquisition of Pepco Holdings, Inc. (POM). This acquisition is expected to be concluded in the second or third quarter of 2015. It will enable Exelon to expand its footprint in the Mid-Atlantic region.
In addition, Exelon continues to upgrade its utility systems, install smart meters and smart grids, and add new facilities to its portfolio. Collectively, these efforts will allow Exelon to provide reliable services to its customers.
Like its peer, NRG Energy, Inc. (NRG), Exelon invests substantially to expand its renewable properties. Under renewable investments, the company’s Generation unit plans to spend $0.26 billion in 2014.
On the downside, Exelon’s generation and energy delivery businesses are highly regulated. Any change in state and federal regulations might disrupt the company’s operations adversely, and subsequently impact its performance.
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