On Thursday, October 3, Exelon (EXC) announced that its Braidwood Nuclear Generating Station is back at full capacity. Braidwood was one of two reactors had been off line since mid-September for routine inspections, maintenance, and refueling. In the wake of today's announcement, I wanted to highlight a number of reasons behind my decision to remain bullish on shares of Exelon.
#1 - Recent Performance and Trend Status
On Thursday shares of EXC, which currently possess a market cap of $24.97 billion, a beta of 0.48, a P/E ratio of 21.61, a forward P/E ratio of 12.90, and a current dividend yield of 4.25% ($1.24), settled at a price of $29.17/share. Based on their closing price of $29.17/share, shares of EXC are trading 3.45% below their 20-day simple moving average, 4.10% below their 50-day simple moving average, and 6.99% below their 200-day simple moving average. These numbers indicate a short-term, mid-term and a sustainable long-term downtrend for the stock, which generally translates into a moderate selling mode for most traders.
#2 - Constellation Supply Contract Could Positively Impact Overall Growth
On Wednesday July, 31, Exelon subsidiary Constellation announced that it had been selected by GNYHA Services to supply electricity within its regional group purchasing program. The three-year agreement between Constellation NewEnergy and GNYHA will allow for more than 180 hospitals and 900 non-acute care facilities in New York State to aggregate power requirements and obtain pricing that based on competitive bids in New York's wholesale power supply market.
Not only will nearly 1100 facilities now have the opportunity to aggregate power supplies, and subsequently obtain affordable pricing, but other conglomerates could very well follow in the steps of GNYHA and assist in the creation of additional revenue streams that would benefit Constellation and ultimately Exelon over the next 12-24 months.
#3 - Regulatory Advantages
In an article that was published on October 1, my fellow SA colleague Bram de Haas noted that recent regulatory action will create a welcoming environment for such companies as Exelon. He said that, "In an environment of tightening regulations (for example, the recent move the Environmental Protection Agency made that more or less stopped the construction of any new coal plants from being financially feasible) a valuable advantage has been created since a majority of the company's competition could be subject to regulatory criticisms whereas Exelon has much less to worry about".
Although initial construction costs can reach the billions, and surrounding communities tend to dislike the idea, recent regulation will allow for the construction of new nuclear plants that are much more cost-effective and environmentally friendly.
A Few Risks to Consider
Although shares of Exelon trade at a fairly affordable P/E ratio and carry a very attractive yield, there are a few things long-term investors need to consider before establishing a position in the stock. For example, Exelon's quarterly dividend experienced a 41% drop in its quarterly payout when the company declared a $0.31/share payout back in April versus its previous quarter's payout of $0.525/share. The second thing long-term investors should consider is the company's most recent earnings performance which missed estimates by $0.01/share and revenues which missed estimates by a margin of $270 million.
The thing that concerns me most when it comes to the company's recent earnings is the fact that ongoing capital expenditures continue to increase and energy margins associated with Generation are in a bit of a decline. Unless either of these catalysts show improvement in both the third and fourth quarters of 2013, I'd be a cautious in terms of the size of position I'd initiate at current levels.
For those of you who may be considering a position in Exelon, I'd keep a watchful eye on a number of catalysts over the next 12-24 months as each could play a role in the company's long-term growth. For example, near-term investors would want to focus on the company's recent performance and trend status, while long-term investors should pay close attention to any developments that may come as a result of recent EPA action or subsidiary supply contracts similar in scope to the one Constellation signed in late July.