Exelon Corporation Earnings: Is This Dividend Stock Ready to Soar?

Cheap energy prices have eaten Exelon stock alive, but is 2014 the year for nuclear?

Feb 7, 2014 at 1:12PM

Exelon Corporation Nuclear

Source: Exelon Corporation. 

Exelon Corporation (NYSE:EXC) reported earnings Wednesday, beating on the top line but missing on the bottom. With cheap natural gas continuing to cut into this nuclear stock's profit, here's what you need to know.

The numbers
Q4 2013 sales clocked in at $6.17 billion, down 1.3% from 2012's fourth quarter but significantly above analyst estimates of $5.56 billion.

Unfortunately, exceeding expectations for sales didn't do much for Exelon's bottom line. Adjusted earnings per share (EPS) came in at $0.50, short of estimates by $0.03.

For a peck of perspective, here's how Exelon sales and profit have fared over the past five years. At first glance, it looks like sales have soared, but Exelon's 2012 merger with Constellation Energy added a big piece of pie to Exelon's portfolio.

EXC Revenue (TTM) Chart

EXC Revenue (TTM) data by YCharts.

Bigger fish to fry
Exelon's Constellation merger was meant to double sales while allowing the company to fatten margins from economies of scale. It was the same move that pushed Duke Energy Corporation (NYSE:DUK)

Bigger isn't always better -- and even if it is, better might not be good enough. In both Exelon's and Duke Energy's cases, an uncompetitive energy portfolio kept shares slumping over the past year. Duke Energy squeaked out a 1.6% gain, while Exelon rummaged around in the red at -4.4%.

EXC Chart

EXC data by YCharts.

Pithy power prices
Two words explain the dismal performance at Exelon and Duke Energy: natural gas. Exelon's massive 19,000 MW nuclear fleet couldn't keep competitive with cheap natural gas, and Duke Energy has been closing costly coal plants left and right, with plans to eventually retire a whopping 6,300 MW of capacity. If you don't believe Duke Energy's intent on destroying its coal assets, check out its latest demolition project:

In an ironic twist of fate, it's Duke Energy's natural gas spin-off, Spectra Energy Corp. (NYSE:SE)and its master limited partnershipSpectra Energy Partners, LP (NYSE:SEP), that were the real winners of 2013. Shares of both Spectra Energy Corp. and Spectra Energy Partners, LP have soared in the past year. Both companies received a serious boost in June when Spectra Energy Corp. announced its plans to drop down all remaining MLP-worthy assets to Spectra Energy Partners, LP by the end of the year. And with America's natural gas infrastructure set to expand further, Spectra Energy Corp. and Spectra Energy Partners, LP shares could head even higher.

SE Chart

SE data by YCharts.

But despite natural gas price's attack on Exelon and Duke Energy, Exelon's nuclear assets are slightly different from Duke's coal. While both fuels require massive infrastructure, nuclear is still considered a clean energy source by the White House, and shouldn't face power-killing policy like coal has.

That's why, despite tough times for its nuclear fleet and a miss on Q4 EPS, shares headed 2.2% higher yesterday. Exelon shares have dropped 50% in the past five years, and investors are looking for any reason to grab a value opportunity.

The utility delivered in the mid-range of its 2013 guidance, with adjusted operating results coming in at $2.50 per share. The company is looking to keep earnings steady in fiscal 2014 with guidance between $2.25 and $2.50 per share. Although it expects its generation business to continue to suffer from lower energy prices, rate hikes for its regulated utilities should help to pad profits.

Exelon Corporation

Source: Exelon Corporation Q4 2013 earnings presentation.

Is Exelon a buy?
Exelon can only control so much. While cheap energy killed earnings potential, the company is on track to realize $550 million in merger synergies by 2015. It's got $15 billion of investments for its utilities in the pipeline, which it hopes will result in a consolidated rate base growth of 5% and 7% annually, with expectations of at least 10% return on equity achieved by 2017 

Exelon shares are in the dumps, but natural gas' destructive path is easing up, and Exelon continues to move ahead on every initiative within its control. With an enviable valuation and a 4.2% diviend yield to boot, I expect these shares to head solidly into the black for 2014.

Diversify your energy investments
Exelon stock could be set to rise, but there's no denying that record oil and natural gas production is revolutionizing the United States' energy position. Finding the right plays while historic amounts of capital expenditures are flooding the industry will pad your investment nest egg. For this reason, The Motley Fool is offering a comprehensive look at three energy companies set to soar during this transformation in the energy industry. To find out which three companies are spreading their wings, check out the special free report, "3 Stocks for the American Energy Bonanza." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free. 


Justin Loiseau has no position in any stocks mentioned. The Motley Fool recommends Exelon and Spectra Energy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers