Exelon Corporation Upped to Strong Buy - Analyst Blog

On Mar 8, 2014, Zacks Investment Research upgraded Exelon Corporation EXC to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

Exelon reported positive earnings surprises in 2 out of the past 4 quarters with an average earnings beat of 3.8%.

Though Exelon's fourth-quarter and full-year 2013 adjusted operating earnings and quarterly revenue lagged the Zacks Consensus Estimate and the corresponding year-ago figures, the company's annual revenues surpassed both the Zacks Consensus Estimate as well as the prior-year figure primarily on the back of improved contribution from Generation and Baltimore Gas and Electric segments.

We note that Exelon continues to maintain a strong cash position besides exhibiting its cash generation efficiency through operating activities. The company's cash balance improved to $1.5 billion as of Dec 31, 2013 from $1.4 billion at the end of 2012. In 2013, net cash flows provided by operating activities increased to $6.3 billion from $6.1 billion in the year-ago comparable period.

A stable financial position supports Exelon's stable growth strategy. In 2013, the company invested $5.4 billion under its capital expenditure program. In the coming five years, the company plans to invest around $15 billion to install smart meter technology in electricity system improvement and gas infrastructure projects as well as transmission ventures. These projects will enable Exelon to provide reliable services to its customers.

Apart from investing in numerous projects, Exelon also utilizes funds to improve shareholder value through regular dividend payouts. In 2013, the company distributed around $1.24 billion as common stock dividends. The company's practice of returning wealth to shareholders through dividend payment will be beneficial for the stock as it attracts investor attention.

We appreciate Exelon's steady effort towards curtailment of its expenses. In fourth-quarter 2013, the company's total operating expenses edged down 4.3% year over year to $5.3 billion, mainly due to decreases in purchase power and fuel expenses, and operating and maintenance expenses. These initiatives will help Exelon to improve margins.

Other Stocks to Consider

Some other stocks worth considering in the utility industry include Public Service Enterprise Group Inc. PEG, OGE Energy Corp. OGE and CMS Energy Corporation CMS. While Public Service Enterprise Group holds a Zacks Rank #1 (Strong Buy), OGE Energy and CMS Energy carry a Zacks Rank #2 (Buy).