Despite Dividend Cut, Exelon Still Has Wide Moat
The energy firm's narrowed dividend was within the range of Morningstar's Travis Miller's expectations, but Exelon still faces near-term challenges.
Market Update
Exelon (EXC) management announced Thursday, along with its 2013 earnings results, that it plans to cut its dividend to a $1.24-per-share annualized rate starting with its second-quarter 2013 payment. This does not affect our fair value estimate or wide-moat rating. Full-year results were in line with our expectations, and we are reaffirming our fair value estimate and moat rating.
The dividend cut is between the target $1.50 per share we had expected and the worst-case $1.00 per share we estimated. At Exelon's closing price Wednesday, the new annualized rate implies a 4% yield. Shareholders will receive one more quarterly payment of $0.525 per share, payable March 8.
Exelon's full-year adjusted earnings per share were $2.85, in line with our estimate but 31% lower than 2011 results primarily because of lower earnings at the Exelon Generation subsidiary. Lower wholesale generation margins and higher costs sank Exelon Generation's earnings to $283 million in the fourth quarter, down 21% year over year. Exelon Generation's nuclear fleet continues to operate at an industry-leading level, achieving a 93% capacity factor across its fleet. A favorable regulatory ruling in Illinois boosted ComEd's revenue by $135 million.
Management introduced its 2013 EPS forecast of $2.35-$2.65. This is in line with our 2013 EPS estimate of $2.50. We continue to expect trough EPS in 2014 at $2.26. Management hedged another 10% of its expected 2014 expected generation but just about 8% of 2015 expected generation since November. Exelon now has hedged just about 30% of its 2015 expected generation, leaving a bit larger open position than it typically would carry to capture the potential upside we think will develop in the coming year.
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