Exelon (EXC) Benefits From Strong Cash Flow & Investments

We updated a research report on Exelon Corporation (NASDAQ:EXC) for the third quarter of 2019. The company is well poised to benefit from the $22.6-billion long-term investment plan to strengthen its infrastructure. The company’s consistent cash flow generation capability will assist it to lower debt and boost growth.

Let us delve deeper to find out the factors that are driving the company and those that might act as headwinds.

Factors Driving the Company

Exelon invests substantially in infrastructure projects and plans to invest nearly $22.6 billion over the 2019-2021 time frame in regulated operations. This is intended to improve the reliability of operations. Such systematic investments in regulated assets will drive rate base growth of 7.8% during the 2018-2022 time frame.

Utility customers across Exelon’s service territories benefited from tax reforms and cost-saving initiatives undertaken by the company. Since 2015, Exelon has announced more than $900 million of cost reductions that has benefited customers. On Oct 31 2019, the company announced additional annual cost savings of nearly $100 million, at Generation, to be achieved by 2022.

Strong regulated performance will allow it to generate cash flow of nearly $7.8 billion in the 2019-2022 time period. Exelon will utilize $4-$4.4 billion to strengthen utility operation and lower outstanding debt in the range of $2.2-$2.8 billion over the next four years.

Factors That May Offset the Positives

Exelon produces a substantial volume of electricity from nuclear plants. Uranium is used in the company’s nuclear power plants to produce electricity. At present, a petition is pending with the U.S. Department of Commerce, wherein petitioners have sought relief by asking the U.S. nuclear reactor operators to purchase at least 25% of their uranium needs from domestic mines over the next 10 years. This might increase the cost of uranium and electricity produced from power plants.

Exelon’s financial performance is guided by price fluctuations in wholesale power price markets. The company sells a portion of its power to wholesale power markets and if the fluctuation in these markets continues, it will impact the company’s financial performance.

Price Performance

Shares of Exelon have outperformed its industry in past 24 months.

Utilities Investing to Strengthen Operations

Utilities are spending in a systematic manner to strengthen and expand existing infrastructure in a quest to serve their customer base efficiently and effectively. These capital-intensive companies will benefit from the decline in rates announced by the Federal Reserve.

In addition to Exelon, utilities like Duke Energy (NYSE:DUK) , Southern Company (NYSE:SO) and American Electric Power (NYSE:AEP) , among others, have decided to spend $31.3 billion, $24 billion and $19.7 billion, respectively, in the 2019-2021 time frame to strengthen their operations.

Zacks Rank

Exelon currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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