Why Exelon Might Keep Pulling Back

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Exelon (NYSE: EXC  )  opened Monday down 1% after Goldman Sachs downgraded the electricity provider from "neutral" to "sell".

So what: Along with the downgrade, analyst Michael Lapides lowered his price target to $26 (from $29), representing about 7% worth of downside to Friday's close. While value investors might be attracted to the stock's big slide over the past six months, Lapides believes that the appreciation potential remains limited given Exelon's seemingly unattractive valuation and weak dividend growth prospects.

Now what: Goldman lowered its Exelon 2013 EPS outlook from $2.39 to $2.33, from $2.32 to $2.29 for 2014, and from $2.19 to $2.16 for 2015. "Our downgrade largely reflects our below consensus expectations," noted Goldman. "We also believe that, after this year's dividend reduction, many investors likely expect a return to solid dividend growth -- however, we view this as unlikely due to low power & capacity prices in EXC's core regions (Mid-Atlantic, New York, Midwest), declining competitive retail margins, higher nuclear operating/capital costs and investment requirements at the regulated segments."

With Exelon shares now off about 27% from their 52-week highs and boasting a still-solid dividend yield of 4%, it's hard to believe that those headwinds aren't already baked somewhat into the valuation.

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  • Report this Comment On October 28, 2013, at 9:34 PM, speculawyer wrote:

    Nuclear power is a disaster until natural gas prices at least double. Who wants nuclear power when solar, wind, and natural gas are all far cheaper?

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