On Oct 10, 2013, we have reiterated our Neutral recommendation on Exelon Corporation (EXC). The company currently has a Zacks Rank #3 (Hold).
Why the Reiteration?
Exelon’s earnings per share in the previous quarter were 53 cents, missing the Zacks Consensus Estimate by a penny and the year-ago figure by 8 cents primarily due to lower energy margins at Generation segment, higher operating and maintenance costs, and an increase in depreciation expenses.
Exelon continues to maintain a strong financial position along with stable cash generation capacity. The company’s cash balance improved to $0.96 billion as of Jun 30, 2013 from $0.7 billion as of Mar 31, 2013. During the first six months of 2013, the company’s cash generated from operating activities was $1.2 billion. A stable financial position enables Exelon to follow a steady organic and inorganic growth strategy.
The company is currently focusing on installing smart meters and smart grids at the utilities operations, and intends to invest approximately $2.5 billion for this purpose. Successful completion of these projects will help Exelon to provide uninterrupted services to its customers at lower electricity rates, while reducing breakdowns and operating costs.
Exelon is also expanding its renewable portfolio and plans to spend $0.8 billion between 2013 and 2014. The company has already acquired a 230-megawatt solar photovoltaic project, Antelope Valley, from First Solar, Inc. (FSLR). These initiatives will enable the company to produce additional carbon-free power in the coming years. The additional output will help the company to fulfill the Environmental Protection Agency’s regulations coming into effect in late 2014.
On the flip side, Exelon’s generation and energy delivery businesses are highly regulated. We note that changes in regulations could interrupt the company’s business plans, which in turn, may impact its performance going forward.
Exelon’s performance depends on price fluctuations in the wholesale power markets. Wholesale power prices are dependent on supply and demand, which in turn, are determined by several factors like fuel prices. In addition, an impact of economic condition, and implementation of energy efficiency and energy demand response programs could influence Exelon’s future results.
Other Stocks to Consider
Other stocks from the industry that are presently performing well include Brookfield Infrastructure Partners L.P. (BIP) and Alliant Energy Corporation (LNT), each with a Zacks Rank #2 (Buy).
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