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Exelon Corporation (EXC - Analyst Report) has entered into an agreement with IHI Corporation, a Japanese organization, for the sale of its five fossil and biomass-fueled power plants in California.

The assets earmarked for sale are Chinese Station, Jamestown; Rio Bravo Fresno, Fresno; Rio Bravo Jasmin, Bakersfield; Rio Bravo Poso, Bakersfield; and Rio Bravo Rocklin, Lincoln. These plants, with a total capacity of 70 megawatts (“MW”), inked with Exelon’s generation portfolio as a part of its merger with Constellation.

Per the contract, Exelon intends to sale 50% stake in the four Rio Bravo power plants and 45% stake in the Chinese Station plant to IHI Corporation. Exelon’s subsidiary Exelon Power will continue to operate these units till the divesture is accomplished.

This transaction will enable Exelon to reposition its assets, which will in turn, strengthen its generation portfolio.

Currently, Exelon strongly follows a long-term growth strategy, which primarily deals with steady assets divestments. The company is continuously divesting its several generation assets in the last few months. Couple of days ago, Exelon sold three of its Maryland based coal-fired power plants to Raven Power Holdings LLC, a unit of Riverstone Holdings LLC for $400 million as a part of its Constellation-merger conditions.

In second-quarter 2012, Exelon reported operating earnings of 61 cents per share, missing the year-ago figure of $1.05 per share and the Zacks Consensus Estimate of 63 cents per share.

During second-quarter 2012 earnings press release, Exelon reaffirmed its full-year 2012 earnings guidance in the range of $2.55 - $2.85 per share and expected operating earnings in the band of 65 cents - 75 cents for third-quarter 2012.

We view Exelon Corporation as a well positioned organization with continuous cost minimization initiatives and accelerating investment in power plants and transmission activities. In addition, the company’s merger with Constellation will improve its operational growth in the coming years.

However, we are skeptical about the effects of volatile weather patterns, rising long-term interest rates and higher operating costs, which might challenge Exelon’s future performance.

Exelon Corporation currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.

Chicago, Illinois-based Exelon Corporation, a utility services holding company, engages in the generation, transmission, distribution and sale of electricity to residential, commercial, industrial and wholesale customers. The company competes with Ameren Corporation (AEE - Analyst Report).

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