Yahoo Finance Exelon Corrects after Supreme Court Upholds Demand Response Rule
Exelon Has Beat Estimates for 10 Quarters: Can It Do It in 4Q15?
Market performance
On January 25, 2016, the U.S. Supreme Court upheld a federal regulation that calls for payments to large energy consumers that use less electricity during peak demand periods. Merchant power players such as Exelon (EXC) and Dynegy (DYN) saw severe falls in their stock prices.
During 2015, utility stocks on average dropped ~8%. Exelon corrected by 22%, while peers Duke Energy (DUK) and Dominion Resources (D) fell more than 10% last year.
Utilities performance is gauged by the Utilities Select Sector SPDR ETF (XLU). XLU invests ~8% of its total holdings in Southern Company.
Valuation
Currently, EXC is trading at an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 5.4x. Its five-year historical average EV-to-EBITDA multiple stands near 6x. The utility sector’s (IDU) average ratio stands at 9.9x.
Exelon’s EV-to-EBITDA for 2015 with an estimated EBITDA for 4Q15 stands at 6.9x. This indicates expectations of a lower EBITDA in 4Q15. Exelon’s EV-to-EBITDA multiple is lower than Duke Energy’s (DUK) at 9.5x. NextEra Energy’s (NEE) EV-to-EBITDA stands at 9.2x, while FirstEnergy’s (FE) multiple stands at 7.8x.
EV-to-EBITDA is a valuation metric that indicates whether a stock is overvalued or undervalued, irrespective of capital structure.
Dividends
Exelon’s dividends have been dwindling over the last few years. In fiscal 2015, it paid $1.24 per share in dividends to its shareholders. Exelon’s dividend yield stands at 4.5% as of January 27, 2016.
Dividend yields of many utilities shot up sharply due to severe price corrections in their stock prices. Exelon is targeting to pay dividends entirely from its regulated operations in order to provide stability. According to Wall Street analysts, Exelon’s forward annual dividend yield is flat to negative.
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