Tuesday, November 26, 2013

Avoid This Stock, Despite The Earnings Beat

By Sarfaraz A. Khan and Gohar Yousuf

About two weeks ago, one of the leading American nuclear power producer and one of the largest suppliers of wholesale electric power, Exelon Corp (EXC), released its quarterly results in which its profit significantly increased due to lower expenses and a positive impact from hedging activities. Excluding the one-off items, the company still managed to beat market’s consensus estimates. However, despite the better than expected performance, the business environment looks very challenging while its shares will likely remain under pressure due to pessimist sentiments expressed in the analysts’ ratings (discussed later). Therefore, I believe that investors are better off staying on the sidelines for the moment.

Quarterly Results

The company’s adjusted earnings rose 1.4% to $667 million, or $0.78 per share, from $658 million, or $0.77 per share, from the same quarter last year. The earnings were considerably above the market’s expectations of $0.66 per share. Similarly, while revenues dropped by 1.2% to $6.50 billion, but Exelon still delivered better results than market’s consensus estimate of $6.20 billion.

The fall in revenue growth can be attributed to lower sales from PECO Energy Company and Commonwealth Edison Company (ComEd), although to some extent, better performance from Baltimore Gas and Electric (BGE) and Generation did offset some of the revenue drop.
Qtrly Revs. 2012
Qtrly Revs. 2013

On the bright side, Exelon’s purchase power and fuel expenses fell by 9.4%, while 20% decline was witnessed in operating and maintenance costs. Consequently, this drop ….read full article at GuruFocus