Excelon Means Excitement or Exercise Caution?
Charlie is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As Excelon (NYSE: EXC) neared its 52 week low, a family member asked for my opinion. As an investment it certainly looked exciting- a P/E of 15, a yield of over 7%!! On the back of a steady decline to yearly low.. urk.. what does the market know about this obviously great investment? I don't follow this stock, but a quick look at some news and some numbers shined the big yellow in my eye. Declining Earnings of 50.7% are among the most prominent.
I compare that to PPL (NYSE: PPL) and Portland General Electric (NYSE: POR) that I know quite well and follow sporadically. PPL is also a large diversified utility holding company with operations in several states and internationally, notably in the UK. Along with ownership of nuclear plants, PPL has owned and operated competitive merchant Hydro and Coal generating stations in Montana for many years as well as rate base, or regulated Coal, gas, hydro, and renewable generation for its utility service areas in Pennsylvania and Kentucky. The accomplished management team has experienced both success and difficulty in international operations, managing to extract itself from a Latin American problem. PPL has successfully integrated several acquisitions, and new utility operations into its existing operations for a number of years with good result.
POR is quite a different sort of utility, much less diverse than Excelon or PPL; fewer operations, a single Oregon based utility service area, and far less opportunity to grow. Moreover, POR has not quite recovered its reputation and goodwill after being owned by ENRON- and it’s possible it will be forever hamstrung by that period. POR has no operating nuclear, but retains responsibility for decommissioned plant site and interim stored spent nuclear fuel. It is hard for me to imagine the circumstances and the time required before POR will find tolerance for risk or growth plans. Employees, regulators, and customers will have long memories of the losses and other pain from the Enron era. At least on a qualitative basis, Excelon ought to be comparable to PPL and more attractive than POR. Yet, both these have less alarming EPS figures, minus 20.9% for PPL and plus 40.7% for POR. Then there are the substantial yield of 5% for PPL and 3.9% for POR. Why would Excelon be sinking to its 52 week low, and looking so expensive compared to PPL and POR?
Heavy on nuclear resources in a bargain natural gas environment, EXC may have risks we can't fully evaluate now. Good nuclear operations mean good management to me, and I have a good deal of background and experience to justify such an opinion. But how to square that with market judgment...that's the most compelling caution flag in all the data. Fool that I am (just had to get that in) I invested just a little research into a stock I would ordinarily ignore.
Just a couple of hours reading opinions and evaluating the sources, raised more yellow flags. Lots of positive opinions and hope (hope is neither a plan nor a strategy) from sources with no real utility or generation experience. Lots of alerts on possible dividend decreases from experienced financial sources, at least one predicting a fall to $1.00/sh...ouch. OK what do the numbers say? Dividend payout of 112% yeow! Red flag, maybe? Goodbye 7% yield. PPL's payout- a staid 51%, and POR a modest 57%.
EXC has a lot of challenges facing it, including integrating a very large merger with Constellation that just closed last March. Then there is managing operations in Illinois, Pennsylvania, and New Jersey among other locations, and dealing with whatever Storm Sandy dished out. Add in some fallout from Fukishima for one of the largest Nuclear Fleets in the country. Revenues that are shrinking won’t help this situation at all.
Balance all this with a CEO that is reportedly an accomplished Nuke with a great track record, and a low cost capital environment for the capital intensive generation business. Nope, just too much risk compared to others like PPL and POR that won’t have to slash dividends. I don't think I can trust analysts without utility and nuclear experience to temper their wide eyed big picture enthusiasm- no matter what their financial credentials look like. I recommend a much closer look before investing.
SkepikI has no position in any stocks mentioned. The Motley Fool recommends Exelon. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!