Will Exelon's Big Bounce Last?

On Wednesday, Exelon (EXC 0.10%) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

As the biggest operator of nuclear power plants in the country, Exelon had a big competitive advantage over its fossil-fuel-focused rivals when coal and natural gas prices were high. In recent years, though, low nat-gas prices have largely left Exelon behind. Let's take an early look at what's been happening with Exelon over the past quarter and what we're likely to see in its quarterly report.

Stats on Exelon

Source: Yahoo! Finance.

Will Exelon justify its big share-price rebound this quarter?
Over the past few months, analysts have cut back on their views of Exelon's earnings potential. They reduced their earnings-per-share calls by a nickel not just for the first quarter but for the full 2013 and 2014 years as well. But the stock has been on a roller-coaster ride, gaining more than 25% since late January after falling roughly the same amount during the fourth quarter of 2012.

The big news for Exelon investors during the quarter came in February, when the company announced its fourth-quarter earnings. The utility posted revenue that was well short of the growth that investors had expected after Exelon's merger with Constellation Energy last year. Even worse, Exelon guided down its 2013 earnings per share from $2.85 in 2012 to a range of $2.35-$2.65 for 2013, and slashed its dividend by 40%.

What's arguably more troubling is the relative lack of a firm growth strategy for Exelon. Rival NextEra Energy (NEE +0.31%) expects to spend an average of almost $6 billion per year over the next four years on projects designed to increase earnings and therefore dividend payout potential, while Dominion (D 0.05%) is aiming to produce 5%-6% earnings growth per year by spending $3 billion annually on new utility projects. By contrast, Exelon's spending on solar is relatively small and its investment on wind is almost nonexistent.

Still, rising natural gas prices have likely been the major cause for Exelon's recent share-price rise. With gas prices now double what they were at last year's lows and the nat-gas tracking United States Natural Gas ETF (UNG +3.72%) up more than 45% in the past year, Exelon's nuclear fleet is finally starting to look a bit more attractive compared to its peers.

In Exelon's quarterly report, the keys to look for will be details on the company's growth strategy, especially as it relates to renewable energy. As other utilities have moved aggressively to shore up growth opportunities, Exelon needs to make sure it doesn't get left behind.

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