Exelon (NYSE: EXC ) stock has been on a roller-coaster ride over the last year, and investors have been left wondering whether this dividend stock will ever put stable returns on the table again. While there are a multitude of macro and market reasons why Exelon stock is so volatile, let's take a look at something the utility does have control over: its margins.
Margins are the easiest way for investors to see how much money a company keeps as a percentage of its total sales. In the case of utilities, gross margins describe how much a utility is spending to deliver electricity to its customers, no frills attached.
Operating margins add in more nuance, and are the best tools for investors to analyze a utility's overall efficiency. Unlike high-level gross margins, operating margins take into account expenses such as fuel, operations and maintenance, and depreciation/amortization.
Net profit incorporates even more expenses than operating, but because utilities tend to have long-term spending schedules with major costs spread unevenly on a quarter-to-quarter basis, it's best to avoid putting too much faith behind these numbers.
Do Exelon stock margins make the cut?
A glance at gross margins point to tough times for Exelon stock. Not only did the utility's margins dip 9.3% in the past year for the biggest drop, but they also place Exelon at the bottom of the gross margin bucket. At 51%, its next closest competitor, FirstEnergy (NYSE: FE ) , is still around 7 percentage points higher. FirstEnergy's focus on coal and considerable debt have recently created tough times for this traditional utility.
Operating margins paint a similar picture. Exelon currently manages to hang on to just 8.4% of its total sales, compared to PPL's (NYSE: PPL ) massive 28.2% haul. PPL has enjoyed major regulatory wins in the U.S. and U.K. over the last year, and its Brit-based ongoing earnings are up 19%.
While Exelon's margins have taken a 35.5% dip over the last year, Duke Energy's (NYSE: DUK ) operating margins also ended up in the red, down 6.3%. Both utilities recently underwent major mergers, and neither has lived up to expectations. Q1 adjusted EPS for Exelon fell 17.7%, while Duke's dropped 10.5%.
Can Exelon stock excel?
There's no beating around the bush: Exelon (and its stock) have had a rough year. But Exelon's demise might be short-lived. Its nuclear-centric portfolio was pummeled by cheap natural gas in 2012, and it's not alone. Global nuclear output fell a record 6.9%, and the U.S. witnessed a significant 2.9% stumble. However, natural gas prices are on the rise, and Exelon's 19,000 MW of nuclear power are quickly returning to their previous cost competitiveness. Exelon is also managing to make the most of regulations, and the recent enactment of smart grid bill put the utility's energy-efficiency programs back on track for $65 million more in 2014 revenue.
Exelon stock has slumped 17.9% in the last year and its margins are in the dumps. But its beaten-down share price isn't indicative of future potential, and the utility's upside could pan out for patient investors.
As natural gas prices rise and the nation moves increasingly toward clean energy, Exelon is perfectly positioned to capitalize on having the largest nuclear fleet in North America. This strength, combined with an increased focus on balance sheet health and its recent merger with Constellation, places Exelon and its resized dividend on a shortlist of the top utilities. To determine if Exelon is a good long-term fit for your portfolio, you're invited to check out The Motley Fool's premium research report on the company. Simply click here now for instant access.