Exelon Earnings: Rate Increases and Revenue Decoupling Support Exelon’s Earnings During Mild Winter
We are reaffirming our $41 per share fair value estimate after Exelon EXC reported first-quarter adjusted earnings per share of $0.70 up from $0.64 in the same year-ago period. Management reaffirmed 2023 full-year earnings guidance of $2.30 to $2.42 per share, in line with our estimate.
Exelon stock now trades at a 4% premium to our fair value estimate as of May 3 after climbing 10% off its mid-March lows. Exelon recently raised its dividend 7% to $1.44 per share annualized, representing a 3.4% yield as of May 3. This is in line with its peers. We expect dividend growth in line with earnings growth throughout our forecast.
Exelon’s usage-decoupled rate structures across many of its subsidiaries make it one of the few utilities in the eastern U.S. that didn’t experience a huge financial impact from an exceptionally warm winter. Earnings benefited from an increase in distribution rates across its subsidiaries. Partially offsetting these benefits were higher interest expenses and unfavorable weather at the company’s utilities that have usage-based rates.
Exelon’s long-term 6% to 8% annual earnings growth through 2026 remains unchanged. We expect Exelon to achieve the midpoint, supported by the company’s $31 billion of capital investments through 2026.
Receiving constructive regulatory outcomes will be critical for management to achieve its long-term earnings growth target and 9%-10% operating returns on equity. We expect constructive regulatory outcomes across the company’s utilities, however, some of Exelon’s regulatory environments can be challenging.
We are carefully watching ComEd’s rate case in Illinois. While we expect regulators to approve an allowed return on equity, or ROE, lower than ComEd’s 10.5% ROE request in its first year of the state’s new ratemaking framework, we forecast returns will be higher than those in the previous ratemaking framework, which were tied to the 30-year U.S. Treasury rate.
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