Exelon Stays on Neutral Lane

We reiterate our Neutral recommendation on Exelon Corporation (EXC - Analyst Report) considering the impacts of Hurricane Sandy, commodity price risks, stringent regulations and depressed margins in its Generation business. However, these negatives are expected to be offset by the company’s strong cash and liquidity position, capital realignment strategy and steady focus on expansion of the renewable assets.

As a consequence of the recently occurred Hurricane Sandy, Exelon spent substantial amount to repair its existing facilities and construct new utility delivery systems in Pennsylvania and Maryland. This unexpected expenditure will affect the company’s forthcoming financial performance.

Further, wholesale power prices are determined by supply and demand of utilities, which primarily depends on the fuel prices, particularly coal and natural gas prices. Fluctuations in the wholesale power prices are expected to impact Exelon’s financial performance.

On the flip side, completion of merger with Constellation has benefited Exelon’s results, and we expect the company to realize further synergies moving forward. The company expects to achieve $170 million of merger-related operations and maintenance synergies in 2012, which is expected to reach $550 million by the end of 2013. This merger will boost the company’s position in terms of load and customer base.

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

In third-quarter 2012, Exelon’s bottom line surpassed the Zacks Consensus Estimate, though the top line missed the same. The Zacks Consensus Estimate for fourth quarter 2012 is currently 66 cents per share, down 20.05% year over year and the Zacks Consensus Estimate for full year is 2.86 per share, down 31.23% year over year.

With a market capitalization of $25.15 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).