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Exelon Corp. (NYSE:EXC) has struggled to deliver satisfactory financial performance over the years. Depressed power prices and dividend cut uncertainties have adversely impacted EXC's stock price. Also, the forward dividend yield of 3.9% offered by the company is below its peers in the industry. Also, analysts are anticipating a negative next five years growth rate of (6.5%) per annum for EXC. Therefore, I recommend investors to avoid EXC stock.

As the company has struggled to deliver satisfactory results, this has negatively affected the company stock price as it is down 24% in the last two years.
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Source: Yahoo Finance

EXC has failed to maintain its margins and other performance indicators in the recent years. The following graphs show falling margins, ROE and ROIC for the company.
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Source: Company Reports and Calculations

EXC reported 4Q'12 and 2012 earnings of $0.64 and $2.85 respectively, in line with analysts' expectations. However, earnings per share for the recent fourth quarter were down approximately 20% YoY. Quarterly revenues of $6.2 billion came out to be 44% higher than 4Q'11.

EXC's largest reporting segment, in terms of revenues and earnings, 'Exelon Generation' (with more than 60% contribution to total revenues) experienced a 20% decline in the earnings despite more than a 50% increase in segment revenues for the quarter. Earnings for the segment were adversely affected due to lower margins. The two other reporting segments, ComEd and PECO, experienced quarterly earnings increase of 35% and 9% respectively year on year basis.

Important take away from the last earnings release was the dividend cut announcement. EXC reported a dividend cut of 41% beginning next quarter, from previous annualized dividend rate of $2.10 per share to revised rate of $1.24 per share. A reduction in the dividend is likely to save $735 million annually in cash for the company. At revised annualized rate of $1.24, EXC offers investors a forward dividend yield of 3.9%. The company is targeting long term payout ratio to be in the range of 65% to 70%. Also, EXC stated during the recent quarter earnings call that the revised dividends are sustainable in the future and have been stress tested at different power price scenarios.
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Source: Investors Presentation

EXC's management highlighted two financial priorities in the recent quarter investors' presentation; firstly to retain investment grade rating and secondly to create value for the shareholders. EXC currently has a long term debt to equity of 85% and a decent interest coverage of 6x.

EXC introduced an adjusted operating earnings guidance range of $2.35 to $2.65 per share for 2013. This operating earnings guidance is based on the assumption of normalized weather conditions. In contrast to EXC's earrings guidance, analysts' are anticipating an EPS of $2.48 for 2013. EXC expects cash flow from operations to be approximately $6 billion and also, EXC maintained its CAPEX spending estimates of $15 to $16 billion for the next 3 years.

Conclusion

EXC

Duke Energy (NYSE:DUK)

Southern Company (NYSE:SO)

PPL Corp (NYSE:PPL)

Next 5 years Growth Rate

(6.5%)

4%

5%

2%

Forward Dividend Yield

3.9%

4.4%

4.4%

4.7%

Source: Yahoo Finance

EXC shares remain unattractive at a forward dividend yield of 3.9% and next 5 years growth rate of (-6.5%) per annum. Also, the company has failed to deliver healthy financial performance in the past, as is evident from the declining margins above in the graph.

Source: Avoid This Utility Giant Stock