Can Exelon Still Compete Against Duke Energy and Southern?

Exelon will release its quarterly report on Wednesday, and the utility has continued to see its stock price languish in recent months, hitting a new decade-low. The cost-effectiveness of natural gas has hurt Exelon's former competitive advantage in nuclear power production, but will the same trends that have vaulted rivals Southern and Duke Energy to higher profits eventually reverse and give Exelon a chance at its own growth prospects?

Exelon saw impressive performance in the years leading up to the financial crisis, as prices for oil and natural gas soared in a commodity boom that made nuclear power look extremely cheap by comparison. More recently, though, the explosion in production of natural gas has revolutionized the power-generation industry, with Southern, Duke, and other players looking closely at converting coal-fired power plants to natural gas and making generation a lot cheaper overall. Can Exelon respond, or does it have to wait and hope for higher gas prices in the future? 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 report.

Stats on Exelon

Analyst EPS Estimate

$0.66

Change From Year-Ago EPS

(14.3%)

Revenue Estimate

$6.24 billion

Change From Year-Ago Revenue

(11.3%)

Earnings Beats in Past 4 Quarters

2


Source: Yahoo! Finance.

Can Exelon turn its earnings around this quarter?
Analysts have kept pulling back on their views about Exelon earnings in recent months, cutting third-quarter estimates by $0.02 per share and reducing their full-year 2013 and 2014 projections by 1%-3%. The stock has continued its downswing, falling another 10% since late July.

Exelon's second-quarter report continued its streak of downbeat performances, as the utility managed to top revenue estimates but fell short on net income. That's consistent with Exelon's longer-term performance, as sales have consistently risen but adjusted profits have plunged by about two-thirds over the past year.

Unfortunately, things don't look like they'll improve for Exelon and peers Southern and Duke Energy on the pricing front anytime soon. Auctions for electricity capacity in future years drive the majority of Exelon's generation-fleet results, and projections for lower power prices well into the future have hurt Exelon's long-term prospects.

In response, Exelon has focused much more on its regulated-utility businesses, which serve 6.6 million customers in Pennsylvania, Maryland, and Illinois. With plans to turn to regulators for rate increases, Exelon has a better chance at reaping growth in that segment than in the wholesale power-generation business. Duke Energy recently got a rate hike of more than 8% over the next two years for its South Carolina operations, although Southern has seen more controversy in requests to regulators for higher rates.

Exelon is also pressing for more dramatic policy changes in the industry. Pushing for smart electric meters could enable Exelon to better serve customers by helping it manage base-load demand as prices change from hour to hour. At the same time, ensuring continued credits for renewable energy will also help Exelon as it diversifies further beyond its nuclear focus.

In the Exelon earnings report, watch to see how the utility's efforts at containing costs and raising revenue are going. In the long run, Exelon most needs higher natural-gas prices to make its generation business more competitive against Southern and Duke Energy, but initiatives to focus on higher-growth opportunities could bear fruit in the meantime.

Is Exelon the best dividend play you can find?
Investors like utility stocks like Exelon for one key reason: their dividends can make you rich. It's as simple as that. Over the long term, the compounding effect of the quarterly payouts, as well as their growth, adds up faster than most investors imagine. With this in mind, our analysts sat down to identify the absolute best of the best when it comes to rock-solid dividend stocks, drawing up a list in this free report of nine that fit the bill. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.

Click here to add Exelon to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

The article Can Exelon Still Compete Against Duke Energy and Southern? originally appeared on Fool.com.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Exelon and Southern Company. 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.

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