Is Exelon Likely to Outperform?

With shares of Exelon Corporation (NYSE:EXC) trading at around $31.35, is EXC an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

exelon constellationThe biggest news here pertains to the dividend situation. Exelon declared a Q1 dividend of 52.5 cents per share that is payable on March 8 to shareholders on record at 5 p.m. EST on February 19. That’s the good news. The bad news is that beginning in Q2, the dividend will be cut from 52.5 cents per share to 31 cents per share. Furthermore, the board approved a devised dividend policy going forward. In simplest terms, there is no telling what will happen with dividend payments. The only certainty is that they’re currently unsustainable.

President and CEO Christopher M. Crane stated that there is a lower certainty in returns, and that the company is not looking to take on more risk. He also stated that the biggest opportunity is the growing investment the company can make is in utilities, and that it’s all about value. Merchant opportunities aren’t being ruled out, but they’re not a priority at the moment.

A lot of this story relates to the trends. Therefore, more information can be found in the Trends section. For now, let’s take a look at some important numbers…

E = Equity to Debt Ratio Is Normal   

The debt-to-equity ratio for Exelon is normal for the industry. The balance sheet is in poor condition.  

Debt-To-Equity

Cash

Long-Term Debt

EXC

0.91

$1.49 Billion

$19.69 Billion

AEE

0.87

$298.00 Million

$6.99 Billion

DUK

0.97

$2.10 Billion

$39.69 Billion

 

T = Technicals on the Stock Chart Are Weak

The past three years haven’t been kind to Exelon. For example, Exelon hasn’t just underperformed the S&P 500 over that time frame, but Ameren Corporation (NYSE:AEE) and Duke Energy Corporation (NYSE:DUK) as well. At least Exelon offers the best yield at 6.80 percent, but that’s still not nearly enough to make up for the difference in stock performance. Ameren currently yields 4.90 percent, and Duke currently yields 4.40 percent.

1 Month

Year-To-Date

1 Year

3 Year

EXC

7.14%

5.51%

-16.57%

-17.04%

AEE

4.32%

6.84%

10.24%

56.53%

DUK

5.09%

8.21%

12.28%

63.47%

 

At $31.35, Exelon is trading above its 50-day SMA, and below its 100-day and 200-day SMA.   

50-Day SMA

30.07

100-Day SMA

32.03

200-Day SMA

34.86

 

E = Earnings Have Been Unimpressive            

Earnings have been decreasing since 2010. This is rare in the current environment, and it’s not a good sign. Ironically, top-ling growth has been solid since 2009.

2008

2009

2010

2011

2012

Revenue ($)in billions

18.86

17.32

18.64

18.92

23.49

Diluted EPS ($)

4.13

4.09

3.87

3.75

1.42

 

When we look at the last quarter on a year-over-year basis, we see an increase in revenue, but a decrease in earnings.

12/2011

3/2012

6/2012

9/2012

12/2012

Revenue ($)in billions

4.22

4.69

5.95

6.57

6.28

Diluted EPS ($)

0.91

0.28

0.33

0.35

0.44

 

Let’s take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Do Not Support the Industry

This is very simple – natural gas is cheaper than nuclear. The White House also favors natural gas over nuclear energy. While Exelon is one the largest nuclear energy providers in the country, only 28 percent of its total capacity is natural gas. Stricter emissions regulations would help Exelon, but that doesn’t look likely within the next four years.

Over the long haul, energy trends change all the time. Many people are fooled into thinking a definitive answer has been found once every few years, but trends then swing back in another direction.

Conclusion

At the present time, natural gas is more popular than nuclear. In addition to that, Exelon’s dividend is being cut and could be in further danger, EPS growth has been poor, and the balance sheet is weak. This certainly isn’t a story that will inspire you to run with the bulls, but it’s still a decent dividend play. It’s also a low-beta stock as well as a utility, so there isn’t too much risk.

All factors considered, Exelon is rated a neutral WAIT AND SEE.

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