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Summary Exelon’s commitment to growing its regulated asset base with investments means it will experience strong future growth. The company remains committed to acquiring POM, which will strengthen and expand regulated operations. Analysts are expecting a healthy earnings growth rate of 5.06% for EXC. I reiterate my bullish stance on Exelon Corporation (NYSE: EXC ); the company’s healthy financial performance in the first half of 2015 indicates that its fundamentals are really strong. Moving ahead, as EXC continues to invest in projects related to its infrastructure growth and development, I expect to see the company’s financial numbers growing at a rapid pace in the years ahead. EXC’s acquisition of Pepco Holdings (NYSE: POM ), if approved, will strengthen the company’s future growth potentials giving more upside to its future earnings and revenue base. And given the fact that the long-withstanding nuclear plant closure plan is about to get legislative approval soon, I believe that EXC will witness a positive impact on its stock price as it will raise investor confidence in the company’s future growth prospects. EXC’s Long-Term Growth Drivers Remain Intact Given the fact that demand for electricity has been increasing at a modest pace, utility companies have been investing heavily in their infrastructure development and growth-related projects to meet growing demand and strengthen their power generation fleet. Like all other companies, EXC is also making hefty growth investments for its natural gas and renewable energy generation-related projects that contain strong potential for rate base growth. Under this investment plan, around 215MW of clean energy generation assets were added to the company’s portfolio in 2014. Moreover, in the first half of 2015, EXC’s 40MW of Fourmile Wind energy project started operations in Maryland, whereas the construction of its second Maryland-based wind project, the 30MW “Fair Energy Wind Project”, is underway. Given the fact that its attempts for growth of clean and renewable energy generation infrastructure have started making positive contributions to the company’s financial numbers in the overall first half of 2015 and, particularly in 2Q15, EXC’s growth efforts have accelerated in this area. Currently, the company is actively working to complete its 230MW of solar photovoltaic project in Antelope valley, Solar Ranch. With around 3.8 million solar panels, the solar photovoltaic project, once completed, will be the largest photovoltaic projects in the world. In addition, EXC is working hard to build a new CCGT unit in Granbury, which is expected to add 1,000MW to the existing 704MW at the natural gas power plant. With their high operational flexibility, which is 100MW/Minute ramp rate and efficiency, these units will not only transmit energy faster but also have the flexibility to generate electricity during peak demand hours. The company’s management has reaffirmed their confidence in CCGT units, and given the strong efficiency of these assets, I believe EXC could generate healthy returns in Texas. Along with its infrastructural growth and development-related projects, the company’s increased inclination towards acquiring other business casts an impressive picture of its future growth prospects. In this regard, EXC has long been eyeing the potentials of POM. Recently, DC regulators have denied the company’s bid for POM, but given the strong growth potentials attached to the deal, EXC’s management said in a recent press release that they will appeal against the regulator’s decision. The company’s management believes the POM acquisition will increase the contribution of its regulated utility earnings to 60%-65%, in total, up from its current 50% contribution, which will ultimately secure its future earnings and sales growth potential, and will also provide stability to its cash flows. Owing to the company’s hefty growth investments made year-to-date and also due to its plan of making more investments in the years ahead, I expect strong sales and earnings for EXC in future. During the 2Q15 earnings conference call, while affirming the company’s long-term investment plan, EXC’s CEO said : …we’re investing $16 billion in our existing utilities over the next five years, which provides respectable growth rates, and roughly another $7 billion with the addition of PHI.” Furthermore, the company’s decision to either shut down or retain the nuclear plants in Illinois is expected this month. Given the fact that retention of nuclear plants will become costly for EXC, due to order costs related to nuclear cores, which depend on the length of continuing operations, and also due to increased legislative requirement under the Obama administration, I believe the company should close its loss-making Illinois-based nuclear reactors in order to better its competitive position and secure its long-term earnings growth potential. Also, EXC will be able to focus on its stable, regulated operations, which ensure a secure and stable cash flow base for the company. EXC has been sharing its success with shareholders in the form of dividends, and dividends offered by the company are safe. Also, its cash flows will improve in future due to the company’s above-mentioned efforts for getting a larger, regulated asset base. The stock offers a dividend yield of 4.20% . Given the company’s commitment to making healthy dividend payments and also due to its secure cash flow base, I expect to see consistent dividend growth in future. Also, analysts expect an increase in cash flows and book value per share for EXC in 2016 and 2017, as shown below. (click to enlarge) Source: 4-traders.com Risks The company remains exposed to the risk of fluctuation in commodity prices, which could adversely affect its margins. Furthermore, rate base risks, volatility in interest rate environment, lower capex outlook and unforeseen weather changes are few risks that might hamper EXC’s future stock price performance. Conclusion The company’s commitment to growing its regulated asset base with investments, including investment directed towards several clean and renewable energy generation projects, makes me believe that EXC will experience strong future growth. Moreover, the company remains committed to acquiring POM, which will strengthen and expand its regulated operations, and provide stability to its sales and earnings in the years ahead. Also, analysts are expecting a decent sales growth rate of 3.16% for EXC, which is well above the industry median of 1.62%. Moreover, analysts have projected a healthy next five-years earnings growth rate of 5.06% for EXC. Due to the aforementioned factors, I am bullish on EXC. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Scalper1 News
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