Exelon Corporation (EXC), following its separation from Constellation Energy, is dedicated to the transmission and distribution of energy. Through cost-saving initiatives and stable operations, EXC consistently generates a strong cash flow and rewards its shareholders.
However, there are potential challenges such as strict regulations and the risk of equipment malfunction or facility issues that could disrupt electric transmission and gas delivery.
Positive Trends for Exelon
Exelon is committed to substantial infrastructure investment, with plans to allocate approximately $31.3 billion from 2023 to 2026. This investment will focus on grid modernization and enhancing infrastructure resilience to benefit customers. The company will allocate $20.8 billion to electric distribution, $6.7 billion to electric transmission, and $3.9 billion to gas delivery during this time frame. These strategic investments will result in an 8% rate base growth through 2026, and EXC aims for a long-term EPS growth of 6-8% by 2026.
In addition, EXC aims to reduce operating and maintenance expenses through cost-saving initiatives. By consistently keeping costs below the inflation rate, Exelon ensures favorable outcomes for its customers. Since 2015, EXC has successfully implemented cost reductions totaling over $1.1 billion.
Supported by a steady cash flow, Exelon continues to provide regular dividends to its shareholders. The current quarterly dividend rate is 36 cents per share, resulting in an annualized dividend of $1.44. With a dividend yield of 3.56%, EXC surpasses the Zacks S&P 500 Composite average of 1.65%.
Potential Challenges for Exelon
Exelon’s energy delivery businesses are subject to rigorous regulation, which may pose operational and financial risks. Changes in regulations or legislation, as well as violations of tariffs and market rules, could disrupt EXC’s business plans and impact its operations and financial results. Additionally, breakdowns in equipment or facilities used in the delivery systems could interrupt electric transmission and gas delivery, resulting in reduced revenues and increased maintenance and capital expenditures.
In the past three months, Exelon’s shares have yielded a return of 2.4%, outperforming the industry’s decline of 2.4%.
Other Stocks to Consider
In addition to Exelon, there are other utilities in the same industry with well-defined investment plans to enhance services:
- NextEra Energy (NEE): NextEra Energy plans to invest $52.7 billion from 2023 to 2027 to strengthen its infrastructure. With a focus on renewable assets and efficient execution across all business segments, NextEra Energy expects strong long-term earnings growth of 8.38%.
- American Electric Power Company, Inc. (AEP): American Electric aims to invest nearly $40 billion in its transmission and distribution business from 2023 to 2027. This investment will enable the company to construct a more efficient grid and deliver customized energy solutions to customers. AEP’s long-term earnings growth is projected at 6-7%.
- FirstEnergy Corporation (FE): FirstEnergy plans to invest approximately $18 billion from 2021 to 2025 to strengthen its existing operations. By bolstering transmission and renewable generation assets, FirstEnergy aims to ensure uninterrupted electricity transmission during adverse weather conditions and provide emission-free electricity to customers. This planned investment will result in a 7% annual rate-base growth over the 2024-2025 period. FirstEnergy expects its earnings per share to improve by 6-8% annually in the long term.
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Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of Nasdaq, Inc.
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