Exelon (EXC) to Gain From Investments & Revenue Decoupling

Exelon Corporation EXC, with its investments in regulated utility operations for grid modernization and electric transmission, will enable it to serve more customers efficiently. Its revenue decoupling is expected to contribute to its performance over the long run.

This Zacks Rank #3 (Hold) stock delivered an average four-quarter earnings surprise of 2.64%.  Its long-term (three to five years) earnings growth is currently pegged at 5.69%.

Tailwinds

Exelon invests substantially in infrastructure projects and plans to invest nearly $34.5 billion during the 2024-2027 period in regulated utility operations to increase the resilience of its infrastructure for customers’ benefit. The company is going to invest $21 billion in electric distribution, $9.7 billion in electric transmission and $3.9 billion in gas delivery in the 2024-2027 time frame. The company serves more than 10 million customers in its service territories.

Exelon is currently concentrating on the transmission and distribution of clean energy. Traditionally, demand for electricity gets adversely impacted by weather fluctuation and lower usage by customers, which affect the operations and profitability of the utility company. To offset the loss of revenues due to lower customer usage, nearly 73% of Exelon’s distribution revenues are decoupled, which insulates the top line from the impact of load fluctuations and leads to stable earnings.

Utility customers across Exelon’s service territories benefited from the tax reforms, energy efficiency programs and cost-saving initiatives undertaken by the company.

Headwinds

Exelon’s equipment or facility failures, specifically if the smart grid or other technologies in the service territory fail to perform as intended, will hamper uninterrupted services to customers. As a consequence, financial results could be negatively impacted.

At times, Exelon needs to borrow from the market to fund its projects. The still-high interest rates will definitely increase the total project expenses and adversely impact margins. High interest rates may put pressure on Exelon’s overall liquidity profile and financial health and impact financial results.

Stocks to Consider

Some better-ranked stocks from the same sector are American Water Works AWK, Unitil UTL and TransAlta TAC, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

American Water Works, Unitil and TransAlta delivered an average earnings surprise of 6.04%, 12.76% and 142.57%, respectively, in the last four quarters.

The Zacks Consensus Estimate for 2024 earnings per share of American Water Works, Unitil and TransAlta has moved up 0.96%, 0.34% and 16.27%, respectively, in the past 60 days.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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