Citi Downgrades Exelon To Sell

Citi’s Praful Mehta downgraded the rating for Exelon Corporation EXC to Sell, while reducing the price target from $28 to $27.

Analyst Praful Mehta mentioned that although Exelon’s deal with Pepco Holdings, Inc. POM is earnings accretive, it is value destructive. The deal not only enhances Exelon’s equity value by $5 billion, but also brings with it additional parent net debt of $4 billion and 58 million shares.

The net impact of the deal is a reduction in Exelon’s standalone equity value by $1 per share, Mehta pointed out. Although Exelon’s dividend yield is high versus peers, the underlying weakness at the company threatens its total returns.

Mehta believes a termination of the deal would result in a higher valuation for Exelon, besides ensuring that the company’s balance sheet is not stretched. Exelon’s earnings in 2017, 2018 and 2019 are expected to increase by $0.05, $0.08 and $0.11, respectively.