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Exelon in a U.S. Defense Pact

AEE EXC

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Exelon Corporation's (EXC - Analyst Report) unit Constellation has received a 2-year electricity supply contract, worth $46.8 million, from the U.S. Defense Logistics Agency (“DLA”). This contract has been awarded following a competitive bidding procedure. The electricity-offering is expected to start from December 2012.

Per the contract, the company will provide up to 780,600 megawatt-hours (“MWh”) of electricity to the six U.S. Navy facilities in the District of Columbia (“D.C.”) area. The facilities are Joint Base Anacostia Bolling, Naval Maritime Intelligence Center, Naval Surface Warfare Center Carderock, the Navy Medical Center Bethesda, the U.S. Naval Observatory Washington and Washington Navy Yard.

The Defense Logistics Agency is a part of the U.S. Department of Defense. It provides combat support including logistics, acquisition and technical services to the U.S. Army, Navy, Air Force and Marine Corps, other several civilian and federal agencies, and allied forces in both peacetime and wartime.

It is evident from Exelon’s past contracts that it has a strong rapport with the U.S government agencies for the last 20 years. In November, 2012, Texas Public Power Pool chose Constellation to deliver low-cost electricity to its members for 3 years. Currently, Constellation is providing customized services to approximately 380 federal government sites and 4,000 government customers in 47 states.

Utility providers’ performance depends on the strength of their electricity-contract-pipeline. We consider the current contract as a positive step for Exelon’s future operating as well as financial results. These types of agreements ensure a steady future cash-inflow while subsequently enabling Exelon to improve its upcoming top and bottom line numbers.

Exelon merged with Constellation earlier this year and has experienced positive impacts related to this merger in the third quarter of 2012. Riding on Constellation’s strong contribution, the company’s quarterly revenue increased 34.6% year over year to $7.02 billion. We expect Exelon to realize further synergies going forward.

However, we expect Exelon’s fourth-quarter and full-year 2012 results to some extent be negatively impacted by the Hurricane Sandy.

Chicago, Illinois-based Exelon Corporation engages in generation, transmission, distribution and sale of electricity to the residential, commercial, industrial and wholesale customers.

With a market capitalization of $25.57 billion, the company has 19,267 full time employees. Like its peer Ameren Corporation (AEE - Analyst Report), Exelon Corporation also has a short-term Zacks #3 Rank (Hold rating).

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