Energy Transition

Why Exelon Corporation’s Infrastructure Modernization is a Game-Changer (NASDAQ:EXC)

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Exelon Corporation reported robust earnings for the first quarter of 2023, with revenue exceeding expectations by $18.55 million to reach $5.56 billion.  Exelon is committed to the development of renewable energy sources and has made the commitment to achieve net-zero emissions of greenhouse gases from all its activities by the year 2030.  The company intends to make capital investments totaling $31.3 billion between the years 2023 and 2026, which will support a projected rate base growth of 7.9% between the years 2022 and 2026.

The Smart Energy Network project, which will replace 568,000 standard electric metres with smart metres by mid-2024, shows ACE’s dedication to modernising and enhancing its infrastructure. Recent rate cases and multi-year plans for Exelon’s regulated utilities are extremely important to the ability for the company to increase its revenue, and the company’s low-risk characteristics contribute to a high credit profile. Exelon was able to execute approximately 80 percent of its required debt financing for 2023 during the first quarter of 2023, greatly lowering interest rate volatility.

Looking ahead, Exelon’s strategic investments in clean energy sources, modernized infrastructure and continued focus on clean energy and net-zero greenhouse gas emissions is expected to increase its appeal among environmentally conscious investors. Additionally, the company’s ongoing capital investments and rate case filings offer a solid foundation for revenue growth amid evolving industry trends.

Earnings Insights & Expectations: Exelon Corporation($EXC)

Exelon Corporation (EXC) is a Fortune 100 energy company headquartered in Chicago, Illinois. The company operates through its six subsidiaries, including four regulated utilities and two merchant power generators.

Exelon Corporation (EXC) announced its Q1 2023 earnings with revenue actuals of $5.56 billion, surpassing estimates by $18.55 million. The company reported normalized EPS actuals of $0.70, outperforming expectations by $0.04. Also, its GAAP EPS actuals of $0.67 exceeded  expectations by $0.02. The company aims to maintain a dividend payout ratio of around 60%.

Rate Case Developments : Exelon’s regulated utilities are required to file rate cases from time to time to adjust their customer rates to recover their costs and earn a reasonable return on their investments. Recently, ACE, BGE, Pepco DC, and ComEd, all regulated utilities subsidiaries of Exelon, have filed rate cases or multi-year plans. These filings are significant for Exelon’s earnings growth and shareholder returns as customer rates are a major revenue source for regulated utilities, and any changes to these rates can affect the company’s financial performance.

The next quarter expectations are set at normalized EPS estimates of $0.47, GAAP EPS estimates of $0.44, and revenue estimates of $4.51B.

Discovering Growth Drivers: Exelon Corporation($EXC)

  • Focus on Clean Energy: EXC has been focused on clean energy, which has been contributing significantly to its growth. The company is actively transitioning to clean energy sources, including nuclear, wind, solar, and hydroelectric power. The focus on clean energy is driven by increasing demand for environmentally friendly and sustainable energy sources.
    • How IIJA Funding Will Boost Clean Energy and Transportation Projects: Exelon is seeking nearly $700 million in funding under the Infrastructure Investment and Jobs Act (IIJA) for projects such as a community innovation centre, battery-backed community microgrids, smart metres, and enhancing grid resilience in underserved communities. The IIJA is a $1.2 trillion bipartisan infrastructure measure that was signed into law on November 15, 2022 by President Biden. The measure includes approximately $550 billion in new federal investments in a variety of sectors, including roads, bridges, water, and broadband, among others. Clean energy and transport will receive nearly $700 million in proposed funding for ten projects across the country as one of the IIJA’s main areas of focus. The proposed projects of Exelon aim to accelerate the transition to a low-carbon economy, improve grid resilience and dependability, generate jobs and economic opportunities, and enhance air quality and public health. In addition to partnering with over 100 community-based organisations and over 25 universities and educational institutions to advance workforce development and other clean energy-related programmes and initiatives, it is anticipated that the projects will generate more than 7,800 potential jobs in the communities they serve. Additionally, the projects will assist the United States in achieving its climate objectives by reducing greenhouse gas emissions and increasing the proportion of renewable energy sources in the energy mix. The IIJA funding for clean energy and transportation initiatives presents Exelon with a significant opportunity to demonstrate its leadership and innovation in the clean energy industry.
  • Net-Zero Greenhouse Gas Emissions: Exelon announced a new objective to accomplish net-zero greenhouse gas emissions across all of its operations by 2030, expanding on its previous pledge to eliminate all carbon emissions from its electricity generation by 2050. In addition, the company pledged to reduce its methane emissions from its natural gas distribution system by fifty percent by 2030, relative to a 2015 baseline. The net-zero emissions objective of Exelon encompasses both direct emissions from its own sources (Scope 1) and indirect emissions from purchased electricity (Scope 2). The company intends to achieve its objective through a combination of measures, such as retiring or selling its remaining fossil fuel assets, increasing its investments in renewable energy sources and technologies, enhancing its energy efficiency programmes and practises, purchasing carbon offsets or credits, and advocating for federal and state policies that encourage the development and deployment of clean energy. The net-zero objective of Exelon aligns with the Paris Agreement’s aim of limiting global warming to well below 2°C above pre-industrial temperatures. The objective also reflects Exelon’s dedication to environmental sustainability and social responsibility, as well as its recognition of the threats and opportunities posed by climate change to its business and stakeholders.
  • Low-risk Attributes Support a Strong Credit Profile: EXC generates revenue from both regulated and non-regulated businesses. The diversification of revenue streams helps to mitigate the impact of regulatory changes and market fluctuations. The company’s diverse portfolio includes energy generation and distribution, natural gas distribution, and energy services.Exelon executed ~80% of its 2023 debt financing needs in the first quarter of 2023, which substantially mitigated interest rate volatility over the balance of the year. This was an important achievement for Exelon’s financial performance and credit ratings, as it reduced its exposure to rising interest rates that could increase its borrowing costs and lower its earnings. By issuing long-term debt at attractive rates in the first quarter of 2023, Exelon locked in favorable financing terms and extended its debt maturity profile.Exelon is the largest T&D utility in the country, serving more than 10 million customers across five states and the District of Columbia. Exelon also benefits from operating in geographically diverse areas that offer growth opportunities and supportive regulatory frameworks. The company has ~100% of its rate base growth covered by alternative recovery mechanisms that allow for timely adjustment of rates based on changes in costs or investments. The company also has ~73% of its revenues decoupled from volumetric risk, which reduces its exposure to weather fluctuations or demand shocks. Exelon expects to issue the remaining $425M of equity by 2025 as part of a balanced funding strategy that preserves its financial flexibility and supports its growth objectives.
  • Capital investments: EXC is making significant capital investments in its infrastructure to improve operational efficiency and reliability. The investments are focused on upgrading existing facilities and constructing new ones. The company’s capital investment plan allows it to maintain a competitive edge and position itself for growth. The company is planning to invest $31.3B of capital from 2023-2026 for the benefit of our customers, supporting projected rate base growth of 7.9% from 2022-2026
  •  ACE’s Smart Energy Network: By mid-2024, the Smart Energy Network will replace 568,000 traditional electric metres with smart metres. Smart metres provide real-time energy usage and power quality data to ACE and consumers. The Smart Energy Network also upgrades ACE’s distribution system with advanced technologies like distribution automation (DA), which can detect and isolate faults and restore service automatically, and communication networks, which can exchange data and remotely control grid devices. The Smart Energy Network will help ACE and its customers by:
    • Improved network dependability with faster and more efficient power restoration for client homes and businesses during climate change-induced extreme weather occurrences. The Smart Energy Network will help ACE increase dependability over the next five years.
    • Upgraded technology improves energy usage reading and invoicing, practically eliminating estimated billing. Customers can use online portals and mobile apps to track and manage their energy usage and receive more accurate and timely invoices.
    • Better bill-management tools and online capabilities that let clients see their daily and hourly energy usage trends to save money and utilise energy more efficiently. Dynamic pricing programmes will offer lower rates during off-peak hours or incentives for reducing consumption during peak hours.
    • To meet climate targets, easier integration of solar, battery storage, and mobility technology. The Smart Energy Network will allow rooftop solar panels and electric vehicles (EVs) to be connected and optimised by ACE. The Smart Energy Network will help ACE comply with state renewable energy policies and decrease its carbon footprint.
    • The Smart Energy Network will cost ACE $193M over three years, one of its greatest construction investments. Workforce development candidates will be trained and certified in smart metre installation and maintenance for 30 jobs. The project’s 52% diverse contracting spend illustrates ACE’s commitment to diversity, equity, and inclusion in its business practises. It is critical to ensure customer acceptance and education, cybersecurity and data protection, and timely and adequate cost recovery from regulators to construct the Smart Energy Network. The initiative shows ACE’s creativity and leadership in the clean energy transition.

Valuation Overview: Exelon Corporation ($EXC)

Valuation Ratios Current 2023E 2024E 2025E
EV/ Sales 4.24 4.43 4.50 4.60
EV/ EBITDA 13.03 11.56 11.33 11.08
EV/ EBIT 22.57 21.28 20.49 19.81
Price/Earnings 33.41 19.63 19.36 18.67

Company Description: Exelon Corporation (NASDAQ:EXC)

Exelon Corporation, a holding corporation for utility services, is involved in the energy distribution and transmission industries in North America. The company engages in the buying and regulated retail selling of natural gas and electricity, as well as the transmission and distribution of electricity, as well as the distribution of natural gas to retail consumers. Additionally, it provides support services, which may include legal, financial, engineering, human resources, information technology, asset management, customer operations, distribution and transmission planning, asset management, system operations, and power procurement. It provides services to distribution utilities, municipalities, cooperatives, and financial organisations, in addition to serving residential, commercial, industrial, and governmental clients. In 1999, Exelon Corporation was established, and its current headquarters may be found in Chicago, Illinois.

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