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Exelon Corporation Message Board

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  • sapnetkram sapnetkram Nov 2, 2012 10:31 AM Flag

    Div cut will rally the stock

    I'm a long, but I wanted to point out that coming up with excuses for the stock price to go up is a form of cognitive dissonance. You don't want to be trading off of that, and you don't want to be buying- or selling- today.

    Go for a jog, get some exercise, think about your other investments. Then come back and make a decision.

    A dividend cut announcement will likely be the *final* 5-10% drop.

    Sentiment: Hold

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    • Credit Suisse has the following take on the div cut:

      ๔€‚ƒ Where could the dividend go? If EXC decides to cut, we would suggest a 40-50% reduction that would bring the
      consolidated payout ratio down to 45-50% and ExGen payout to 25-45% in 2014, which we think is a more reasonable level
      for a commodity cyclical business. A cut at this level would annually save ~$800 MM of cash, cut our FCF deficit in half
      (which has been a concern to us) and create a stable platform for EXC to eventually establish a return of cash strategy in a
      recovery.
      ๔€‚ƒ When? We appreciate mgmt's confidence in a power market recovery but the affordability issue will persist even with a
      recovery; waiting until 2Q13 offers some hope but the uncertainty in the meantime will not help the stock price.
      ๔€‚ƒ Our revised 2012-15 EPS estimates are $2.84,$2.45,$2.29, $2.68 from $2.78, $2.48, $2.30, which now also assumes EXC
      lowers the dividend by 40% in 2H13. We think the stock will do poorly with a dividend cut but could also create a good
      entry point.

      So there is plenty of room to protect the investment grade credit rating, which is what the CEO must do. My point is that people who depend on investment income from utilities are better off buying utility bonds in companies that have a substantial dividend. By cutting the dividend, the CEO protects the bond payments. No cognitive dissonance in that...just good solid risk aversion.

    • #$%$ this dog is headed to $25

      • 1 Reply to jus_foolin_around
      • There's a 40-50% chance you're right that we will temporarily touch $25/share. As you know, this would bring us to 8x earnings, a record low for a well-financed utility.

        The long-term investor cannot afford to take the risk that we miss $25/share.

        According to a study by Oak Ridge National Laboratory, Exelon's reactor operating costs are around $15-20/MWH. Combined cycle turbines spend $5/MWH alone on maintenance. Generously assuming 50% efficiency and $3/mmBTU, the natural gas producers are running operating costs of at least $25/MWH, so Exelon's nuclear reactors have a $5-10/MWH edge over natural gas. We produce 262 million MWH per year, so the floor on operating income for the generating portion of the utility is around $1.3- $2.5 Billion. (This does not include distribution and transmission, which probably generate another $1-2 Billion).

        Meanwhile, our bonds carry about $500 million/year of interest. You do the math.

        The ICC will grant ComEd a significant rate hike next year if we start trading at the book discount you suggest.

        So we may touch $25 for a short time, but fundamental pressures will move us back up to the thirties fairly easily.

        Sentiment: Hold

 
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