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Exelon (EXC) to Gain From Cost Management & $29B Investment

Exelon Corporation EXC, post separation from Constellation Energy, is completely focused on the transmission and distribution of energy. EXC’s cost-saving initiatives and stable operations allow it to generate a steady cash flow and reward its shareholders.

However, stringent regulations and the risk of malfunctioning equipment or facilities used in delivery systems could interrupt electric transmission, and electric and natural gas delivery.

Tailwinds

Exelon invests substantially in infrastructure projects and plans to invest nearly $29 billion during the 2022-2025 forecast period in regulated utility operations for grid modernization and increasing the resilience of its infrastructure to benefit customers.

EXC will invest $18.9 billion in electric distribution, $6.4 billion in electric transmission and $3.7 billion in gas delivery in the aforesaid time frame. Exelon’s systematic investments will support rate base growth of 8.1% in the 2021-2025 time period. EXC also targets long-term EPS growth of 6-8% through 2025.

Exelon targets lowering operating and maintenance expenses through its cost-saving initiatives. Since 2015, Exelon has announced more than $1.1 billion of cost reduction that benefited customers. Its ongoing cost-saving measures, keeping costs below the inflation rate, will further favor customers going forward.

Backed by a steady cash flow, Exelon continues to pay out regular dividends to its shareholders. Post separation, Exelon’s board of directors announced a quarterly dividend of 33.75 cents per share, resulting in an annualized dividend of $1.35.  It aims to increase its dividend per share annually by 6-8% through 2025, subject to the approval of its board members.

Headwinds

Exelon’s energy-delivery businesses are highly regulated and could face regulatory or legislative actions that adversely impact their operations or financial results. Fundamental changes in regulation or legislation and violation of tariffs, market rules and anti-manipulation laws could disrupt EXC’s business plans and hurt its operations or financial results.

Breakdown the equipment or facilities used in the delivery systems could interrupt electric transmission as well as electric and natural gas delivery, which may reduce revenues, and increase maintenance and capital expenditures.

Stocks to Consider

Some other utilities in the same industry with well-chalked-out investment plans for strengthening their services are NextEra Energy NEE, American Electric Power Company, Inc. AEP and Dominion Energy D.

NextEra Energy aims to invest $85-$95 billion from 2022 through 2025 to strengthen its infrastructure. Courtesy of persistent renewable asset additions to its generation portfolio and execution across all business segments, NextEra Energy expects to witness a CAGR of more than 10% for earnings per share through 2025 from the 2021 adjusted EPS of $2.55. The long-term (three to five year) earnings growth of NextEra Energy is currently pegged at 9.66%.

American Electric aims to invest approximately $24.8 billion in its transmission and distribution business during the 2022-2026 period to construct a more efficient grid and deliver custom energy solutions to customers. Such investments should enable AEP to make infrastructural upgrades in its transmission and distribution of utility services to resist adverse climate conditions and offer better facilities. Its long-term earnings growth is currently pegged at 6.11%.

Dominion Energy plans to invest $37 billion during the 2022-2026 time frame to strengthen its existing infrastructure, of which a major portion will be spent on zero-carbon generation and energy storage. Dominion Energy is in the process of providing 4,000 MW of solar or wind generation for the state of Virginia.

The company's objective is to add 24 GW of battery storage, solar, hydro and wind (offshore as well as onshore) projects by 2036 as well as increase renewable energy capacity by more than 15% per year, on average, over the next 15 years. Its long-term earnings growth is currently pegged at 6.35%.


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