Exelon Earnings: Regulatory Filings Key to Future Growth

We are reaffirming our $41 per share fair value estimate after Exelon EXC reported second-quarter adjusted earnings per share of $0.41, down from $0.44 in the same year-ago period. Management reaffirmed 2023 full-year earnings guidance of $2.30-$2.42 per share, in line with our estimate.

Exelon’s long-term 6%-8% earnings growth through 2026 is unchanged. Management expects to be at the midpoint of that range or higher. We expect Exelon to achieve the midpoint, supported by the company’s $31 billion of capital investments through 2026. We expect the dividend to grow in line with our earnings growth forecast. Exelon now trades in line with our fair value estimate after trading at a slight premium to our fair value estimate in mid-May.

Earnings in the quarter benefited from increased customer rates and investment across its service territories, offset by higher interest expense and unfavorable weather compared with the same year-ago period in service territories with usage-based rates.

Constructive regulatory outcomes will be critical for management to achieve its long-term earnings growth target and 9%-10% target operating returns on equity across its subsidiaries. We expect constructive outcomes in the company’s regulatory proceedings, though we think this could be challenging as some of Exelon’s regulatory environments can be difficult.

We believe the outcome of ComEd’s first rate case in Illinois under new legislation will set the tone for the regulatory environment in the state. While we expect regulators will approve an allowed ROE below ComEd’s 10.5% request, we do forecast regulators will approve an ROE materially higher than ComEd’s previous ROEs that were tied to the 30-year U.S. Treasury rate.

The company reached the end of its three-year term of its U.S. Department of Justice-deferred prosecution agreement related to the company’s lobbying practices after complying fully with the agreement.