How Are Exelon’s Operating Segments Performing?
Exelon Has Beat Estimates for 10 Quarters: Can It Do It in 4Q15?
Mergers and acquisitions: A growth catalyst?
Exelon’s (EXC) growth was catalyzed by its recent mergers and acquisitions. Exelon’s revenues increased sharply after Constellation Energy merged with the company in March 2012. Constellation made the Exelon Generation segment stronger by adding capacity.
Exelon’s merger with Pepco Holding (POM) is still pending with regulators. The merger is expected to be completed in early 2016. Due to the merger delays, Exelon has lost $0.13 per share because of interest expense and share dilution.
Exelon Generation
Exelon Generation is Exelon’s principal operating segment. It contributes nearly 55% to Exelon’s total earnings. Exelon Generation benefited during extreme weather conditions and captured higher margins in 3Q15.
Exelon has one of the cleaner fuel generation mixes, with maximum power derived from nuclear and natural gas. Lower fuel costs could have a positive impact on Exelon’s 4Q15 earnings.
The above graph depicts the contribution to net income by Exelon’s operating segments. The slump in 4Q14 from Exelon Generation shows the loss due to higher operating expenses during the quarter.
Exelon utilities
Commonwealth Edison and PECO Energy are subsidiaries of Exelon. They primarily serve customers in Northern Illinois and Southern Pennsylvania. PECO’s natural gas (UNG) sales generally peak during winter months when heating requirements raise demand. These subsidiaries of Exelon have a capital spending plan of $18 billion for the next five years, which will be recovered from its service territories by rate increases. Favorable weather conditions can have a bigger impact, driving the performance of these utilities in 4Q15.
Investors can have a passive exposure to utilities by investing in the Utilities Select Sector SPDR ETF (XLU). XLU invests 4.6% of its total holdings in Exelon. NextEra Energy (NEE) and Duke Energy (DUK) are some of XLU’s top holdings, each accounting for 8% of XLU.
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