Friday July 06, 2012
by John Buckingham, editor The Prudent SpeculatorExelon (
EXC) shares have struggled over the last eight months, down some 17%, falling prey to depressed power prices. We believe that this weakness has created an attractive long-term buying opportunity.
Chicago-based Exelon, the largest nuclear power generator, accounting for some 22% of U.S. supply, is one of the largest U.S. utilities by market capitalization, with plants primarily located in the Midwest and Mid-Atlantic.
The firm’s diversified power generation also includes coal, hydroelectric and gas. Additionally, the company has two large energy delivery subsidiaries, ComEd in Illinois and PECO in Pennsylvania, which combined serve over 5 million customers.
While power prices are low, we agree with management that they are likely to rebound over the long term. The EPA’s forth- coming tougher air-quality rules would be beneficial for EXC as many of its nuclear assets are located in largely coal-driven markets.
We think the new rules could lead to a number of coal-fired plants shutting down instead of installing expensive emissions controls, especially if their operators cannot pass on costs to consumers via rate hikes.
We also like that Exelon boasts strong free cash flow and stands on a sound financial footing. The stock currently offers a quite generous 5.6% dividend yield.
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