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Market Update

Earnings on Tap: Exelon

The nuclear operator will struggle to cover its current dividend in 2014-15 without putting its investment-grade credit rating in jeopardy.


Utility company  Exelon (EXC) is scheduled to report its latest numbers Thursday morning before the markets open. The consensus estimate is calling for earnings of $0.65 per share compared with $0.91 per diluted share reported in the fourth quarter a year ago.

For the third quarter, the company reported net income of $296 million, or $0.35 per diluted share. The company also revised upward its full-year operating earnings-forecast range to $2.75 to $2.95 per share.

The country's largest nuclear operator faces "escalated enforcement action" for deliberately underreporting for four years the amount required to decommission its reactors, as alleged by the U.S. Nuclear Regulatory Commission. Exelon, which is disputing the commission's findings, is conducting its own investigation of the matter, according to media reports. Investors will like to hear management's views on this aspect.

Meanwhile, analysts are expecting the board of directors to decide during the next few days whether to cut the firm's $2.10-per-share annual dividend, as announced earlier.

Morningstar analyst Travis Miller writes, "Our cash flow analysis, based on current market power prices and hedges, suggests Exelon will struggle to cover its current dividend in 2014-15 without jeopardizing its investment-grade credit rating." 

Miller thinks Exelon can make it through 2013 and part of 2014 with enough cash to cover the current $2.10-per-share dividend, so the board could choose to wait out a recovery in the power markets.

The stock has slumped more than 7% since the beginning of November and is presently trading at a discount to Miller's fair value estimate.

Gazala Parveen does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.