We reiterate our Neutral recommendation on Exelon Corporation (EXC) considering its pending rate cases, erratic weather patterns in its service territories, and depressed margins at its generation fleet. But, these are expected to be offset by the company’s strong balance sheet, solid regulated utility operations, a high-return merchant energy segment and steady utility investments in its well-managed nuclear generating fleet.
There are several factors which are expected to obstruct Exelon’s financial and operational growth. We know that the company’s generation and energy delivery businesses are highly regulated. Fundamental changes in rules and regulations can disrupt Exelon’s business plans and adversely affect its operations and financial results.
On a positive note, Exelon recently completed its merger with Constellation Energy. We believe this merger will boost the company’s position in terms of load capacity and customer base. This merger will also enable Exelon to work on fuel innovation and increase operational efficiency. These initiatives will subsequently lower the power production costs of the company.
In addition, Exelon continues with its investments to upgrade the plants, which will subsequently enable the company to produce additional 420 million watts of carbon-free power in the next five years. In the future, additional production will benefit the company in terms of increasing its market share.
On the flip side, weather patterns and the related impact on electricity and gas usage may affect Exelon’s operational results. Moderate temperatures in the summer and winter seasons adversely impact the use of energy and the company’s numbers. Additionally, Exelon is affected by extreme weather conditions, such as hurricanes and storms, in its service territories and other parts of the U.S.
The Zacks Consensus Estimate for Exelon’s second quarter and full year 2012 earnings are currently pegged at 64 cents per share and $2.78 per share, respectively.
Exelon Corporation currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.
Chicago, Illinois-based Exelon Corporation is a utility services holding company. It engages in the generation, transmission, distribution and sale of electricity to residential, commercial, industrial and wholesale customers. The company competes with Ameren Corporation (AEE).Read the Full Research Report on EXC
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