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Exelon Corporation (NYSE:EXC) is a diversified utility company and an S&P 500 constituent with a market capitalization of $33 billion. The company engages in the generation of electricity from nuclear, fossil, hydro, and renewable energy sources. The company competes with American Electric Power (NYSE:AEP), Consolidated Edison (NYSE:ED), Duke Energy (NYSE:DUK) and Southern Company (NYSE:SO).

Why to like Exelon

Dividend- and income oriented investors might want to take a good look at the U.S. utility industry and Exelon in particular. Utility companies are characterized by a comparatively transparent and low risk profile, with the biggest risk coming from energy regulation. Cash flows and earnings, however, are usually quite stable as demand can be forecast rather accurately. In this regard, Exelon is an attractive investment for the following reasons:

  1. In the last 4 quarters, Exelon beat analyst consensus estimates three out of four times. Annual past EPS growth for the last 5 years stood at close to 10%, which indicates a solid earnings and growth trend, with possibly higher dividends in the future if Exelon can achieve historical growth rates.

  2. Exelon achieves a high return on equity of 11% and a net profit margin of 11% indicating high profitability.

  3. Investors get to enjoy a 5.41% dividend yield, which could make Exelon a substitute to a bond holding in a well-diversified portfolio.

  4. Analyst EPS estimates for 2013 stand at $2.81. Application of a 16x forward earnings multiple yields an intrinsic value estimate of $44.96, representing about 16% upside potential making the stock still undervalued.

  5. Technically, the chart gives two bullish signals: The stock recently exceeded the upper bound of both the short- and long-term trend canal indicating increased buyer interest. If Exelon can hold this momentum and surpass the mark of $39, the stock has enough room to head immediately higher.

Conclusion

Yield-chasing investors may find Exelon's 5.41% dividend appealing. With a forward P/E of 13.8, the company has less upside than Duke Energy, for example, which only trades at 12.8x earnings but also has a lower dividend yield of 4.6%. With Exelon, as Duke Energy, investors should expect the majority of their gains to come from dividends rather than capital gains. Stop-loss limits reduce the risk of sustained losses should Exelon be subject to adverse energy regulation.

Source: Is Exelon Worth $45 A Share?