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Weekly Wrap: Politics in Play in Exelon's Closure Decision

Exelon's decision to close Three Mile Island seems to be aimed at pressuring Pennsylvania to implement nuclear plant credits. Plus, caution with Perrigo, and HP Enterprise's guidance disappoints.

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Jeremy Glaser: Exelon makes a political move; we still don't have confidence in Perrigo; and HP Enterprise's guidance disappoints. This time on the Morningstar Weekly Wrap.

Exelon's decision to shut down the Three Mile Island plant is as much politics as economics, says Morningstar's Travis Miller.

Travis Miller: Exelon's announcement on Tuesday that it would close its Three Mile Island nuclear plant in Pennsylvania by 2019 came as no surprise to us. We've seen the economics for that plant deteriorate as natural gas prices have fallen, and natural gas generation instead of nuclear generation has become more economic. We already excluded Three Mile Island from our projections starting in 2019, but we think the move by Exelon is more of a political statement than actual economic statement. 

Exelon's been lobbying politicians in Pennsylvania to grant credits for nuclear plants that have struggled with economics, very similar to what Exelon has succeeded to do in New York and Illinois. Exelon stands to make several hundred million dollars of credits from New York and Illinois nuclear plants that otherwise would have closed. Now, with the Three Mile Island announcement, we think the pressure is on Pennsylvania to implement similar credits.

Glaser: Perrigo's filings may be up to date now, but Michael Waterhouse thinks investors should still exercise caution.

Michael Waterhouse: Specialty pharmaceutical company Perrigo has faced a tough number of quarters based on pricing pressure in its generic topicals business, as well as a botched integration of its Omega International consumer health business, and also recently had to restate a number of financials coinciding with a sale of its Tysabri royalty stream. They just reported their first-quarter results this week, and it got all of their filings up to date. Broadly speaking, the quarter was roughly in line with our expectations. There's still some weakness in pretty much all of the business lines, but results overall tracking our view, and we do think that those results will probably begin to turn around in 2018.

That said, we do think the stock is currently fairly valued, and we'd recommend investors look for wider margin of safety before taking a stake in this no-moat business.

Glaser: Shares of HP Enterprise slipped this week after providing weak guidance. The firm is facing a tough pricing environment as more of its products become commodity-like. Analyst Tim Feeney thinks management is doing a decent job of positioning the firm for the future and cutting costs, but he still sees shares as trading above their fair value estimate.

In case you missed it on this week, Karen Wallace looked at 25 funds investors have been selling.

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