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Author: astroview80 One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 41614  
Subject: Excelon - EXC Date: 12/23/2012 7:02 PM
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One stock I saw on the screens is Excelon. It seems to be near 52 week lows and is coming up undervalued on most of the screens.

http://invest.kleinnet.com/bmw1/stats20/EXC.html
http://invest.kleinnet.com/bmw1/stats25/EXC.html
http://invest.kleinnet.com/bmw1/stats30/EXC.html

The fear is of a dividend cut as outlined in this article:

http://online.barrons.com/article/SB500014240527487035557045...

The other issue are low gas and electricity prices. I'd like to know if anyone has thoughts on this stock. Thanks.
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Author: HaltCatchFire Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 40866 of 41614
Subject: Re: Excelon - EXC Date: 12/24/2012 10:17 AM
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The other issue are low gas and electricity prices. I'd like to know if anyone has thoughts on this stock.

Merry Christmas!

Exelon makes its money generating electricity via nuclear power plants. The immediate problem facing nuclear power is that natural gas is at historic lows, is cheaper to supply, and can be ramped up and down quickly to match peak demand loads. Longer-term concerns are the risk of a meltdown a la Fukushima, and the regulatory risk that brings; the capital needed to maintain the plants; the age of the existing nuclear power plants; and the extremely long time it takes to bring a new nuclear power plant on line, including permitting, inspections, and overcoming NIMBY concerns.

The immediate concern, which Barron's points out, is that earnings are contracting down to 100% of dividend payout. If earnings cross that threshold, the odds are very good the dividend will be cut. (Or bonds will be issued to pay the dividend, which is worse in my opinion.) The short term trend makes it likely that the dividend will be cut, which will in turn drive the stock price lower.

The longer-term concern is that the new-found wealth in natural gas is a game-changer, that lower cost electricity is a permanent situation, and the BMW assumption that the business is basically the same has been violated. Honestly I don't know the answer to that. I can't tell you that we'll continue to produce natural gas at the current rate, or that the environmental impact of fracking will stop the development of this resource, or what.

This is a good BMW pick only if you think natural gas production is not a game-changer in the electrical generation market. And if you can't answer that question, this may be one to walk away from.

Regards,

- HCF

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Author: captainccs Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 40867 of 41614
Subject: Re: Excelon - EXC Date: 12/24/2012 10:22 AM
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The longer-term concern is that the new-found wealth in natural gas is a game-changer, that lower cost electricity is a permanent situation, and the BMW assumption that the business is basically the same has been violated.

There is an energy glut in our future. X-post at Value Hounds

http://boards.fool.com/trough-anti-peak-oil-30449274.aspx

Denny Schlesinger

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Author: mauser96 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 40868 of 41614
Subject: Re: Excelon - EXC Date: 12/24/2012 3:01 PM
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Shale hydrocarbons outside the US are a very iffy proposition.

http://www.forbes.com/sites/matthewhulbert/2012/07/12/why-eu...

the real culprit in this story isn’t so much the low hanging political fruit of Central and South East Europe facing an uphill geological and geopolitical shale battle, but the raft of Western European states that have taken shale off the table. Russia is against shale oil, these countries a have let themselves get totally dependent on Russia for present NG supplies. At this time Russia does not have either the desire or the technology to develop it's own shale NG.

I'm no geologist but inside the US some big "shale"areas like the Bakken actually produce from non shale layers (dolomitic limestone) sandwiched between shale layers. In many cases shale tends to be more of a source than a reservoir.

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Author: captainccs Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 40869 of 41614
Subject: Re: Excelon - EXC Date: 12/24/2012 8:15 PM
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I read recently that Russia was hiring Exxon to help explore the shale reserves.

Exxon Fracking Siberia to Help Putin Maintain Oil Clout
By Jake Rudnitsky and Stephen Bierman on June 14, 2012

Russian President Vladimir Putin is counting on Exxon Mobil Corp. (XOM) to help drill oil fields in Siberia that may hold almost half the proved reserves of the U.S., extending the petroleum boom that underpins his power


http://www.businessweek.com/news/2012-06-13/exxon-fracking-s...

Denny Schlesinger

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Author: PaulEngr Big red star, 1000 posts 10+ Year Anniversary! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 40871 of 41614
Subject: Re: Excelon - EXC Date: 12/28/2012 9:48 AM
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The natural gas situation in Europe is so ridiculous that it is far cheaper to liquify natural gas in the US and export it to Europe. The Russians know it and are not idiots. When the time comes that shale gas whether US or Western European sourced becomes a threat they will have a choice of continued ridiculous profit margins but lower market share or to jump into the fracking business (shale or conventional) themselves.

Let us not forget also that especially offshore there are massive reserves of natural gas "ice" that haven't been touched either.

As to EXC market...what gas is doing is to INCREASE the cost of electricity because of dumbkopfs in Washington. Before the big run up (and down) of natural gas the price per BTU of natural gas was 4 times higher than coal in general although transport of both has an effect...Texas coal is literally dirt cheap because a lot of it is lignite/brown coal with BTU ratings as low as 3500 mmbtu/ton, literally dirt that burns. With new sources coming online currently natural gas is now ONLY 50% more expensive and that's with the glut on the market. EPA new rules are causing conversion to not combined cycle gas plants that take advantage of technology to reduce the cost differential but to simple turbine gas burners that are the same efficiency or less than the coal fire plants they are replacing. This is what Duke/Progress (largest US utility) at least is doing in many cases.

Nuclear plants (current ones, not some Gen IV designs) are strictly baseload stations. They are about 1/4 to 1/2 as cheap to produce electricity as coal even with current regulatory silliness. Their status in the country as far as operation goes is unlikely to change anytime in the near future, unlike coal that is moving towards more of an export market unless liquifaction (not unlikely given current oil prices) starts to grow. The environmental regulation is going to put upward pricing pressure on consumers while the utilities generate record profits from conversion to "cheap" natural gas (cheap relative to itself, not relative to coal/nuclear alternatives). The effect on EXC over the short term (as utilities negotiate with public utility boards) is reduced margins on non-nuclear/coal generation but increased margins on the remaining coal/nuclear producers over the longer term.

The more tricky one to predict is continued growth in cogen, small producers, and deregulation which is creating real competition on the production side especially in places like the PJM and CAISO grids. Time will tell whether other RTO's adopt the same deregulated generation environment.

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Author: kelbon Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 40873 of 41614
Subject: Re: Excelon - EXC Date: 12/30/2012 12:18 AM
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The notion that cheap natural gas is here to stay, or for instance, that gasoline will never fall below $3.50 a gallon ever again, is down to short-term thinking. Sometimes though, short-term can seem like forever. The future is hardly ever easy to predict; after all, the Stone Age didn't end because we ran out of stones.

When a source of energy is unexpectedly cheap for an extended period, the price of natural gas in this case, then invariably the rush to produce it eases off. It's just not a great proposition because there's not much of a profit margin if the stuff is retailing for cheap. This cycling happens time and again and invariably as prices rise those on the exploration end are caught short, and, as demand outstrips supply prices continue to increase. As retrofitting and conversion for natural gas continues demand will rise, and along with it, price. Therefore, it follows that Exelon will likely see an improvement in earnings at some point.

In the meantime, there are huddles to be cleared. Earnings are depressed to the extent that the dividend is in jeopardy. Not because the company literally can't pay it, but because it doesn't want to see the stock's rating downgraded. Consequently, a dividend cut is likely. Even after a cut the dividend yield will still probably be north of 4%. Earnings are expected to pick up some in 2013 when expenses related to the acquisition of Constellation Energy begin to appear in the rearview mirror.

It's reasonable to think there's a very pessimistic scenario priced into the stock below $30 a share. Exelon is the largest generator of (low cost) nuclear power in the country. Not only have low natural gas prices hurt, but presumably so has the present negative view of nuclear power given the disaster in Japan. Germany has been so spooked that it intends to do away with it's nuclear power plants altogether. Needless to say, more people are killed every year, one way or another, because of the use of coal to generate electricity than in any, or all, past nuclear facility disasters. But that's another story.

Tightening EPA emissions standards will likely benefit EXC as electricity produced by nuclear facilities is relatively clean and cheap.

For what it's worth, Morningstar considers EXC in "consider buying" territory and significantly undervalued. They estimate "fair value" at $42.00 a share. In fact, EXC is on their list of favorites for new money. Value Line, on the other hand takes a more cautious wait-and-see approach, which in effect translates as look elsewhere.

kelbon

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Author: cyclelex One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 40874 of 41614
Subject: Re: Excelon - EXC Date: 12/30/2012 12:12 PM
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No one has talked about their debt.

The company has a market cap of 24.8 Billion but has 19.74 Billion in debt and only 1.7 Billion in cash.

Their revenues and income look good. Is this income strong enough for this kind of debt?

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Author: kelbon Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 40875 of 41614
Subject: Re: Excelon - EXC Date: 12/30/2012 1:02 PM
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The company has a market cap of 24.8 Billion but has 19.74 Billion in debt and only 1.7 Billion in cash.


Their market cap has no bearing on whether they have too much debt or not. Inevitably, if a company's stock price declines its market cap will shrink, both in and of itself, and in proportion to their debt burden. You wouldn't pass on a low stock price just because now the company's debt is larger in relation to what the shares sell for.

Exelon's debt burden is about average for the electric utilities industry. The nature of this industry requires a large amount of capital expenditure. The beauty of nuclear power is that although it is very expensive to build the plants, after they are up and running the electricity they generate is cheap to produce.

There's often a misconception about debt levels because one size doesn't necessarily fit all. In some businesses high debt is a bad, in others; not so much, and in high cap-ex industries a moderate amount of debt is usually a necessity.

Companies that have a regular, predictable, and reliable source of income (earnings) month in month out, can comfortably afford to carry debt because they know they will be able to comfortably service it. There's not much more of a guaranteed income stream than people paying their electric bills every month.

For what it's worth, Value Line gives Exelon a B++ for Financial Strength. This is not stella, but it's in a comfort zone.

The company was gunning for improved earnings down the road, and diversification, in their purchase of Constellation Energy. Improving earnings should kick in over the next couple of years.

kelbon

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Author: cyclelex One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 40876 of 41614
Subject: Re: Excelon - EXC Date: 12/30/2012 4:28 PM
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I don't think we will ever agree on "Market Cap" Kelbon. Aside from that I agree about debt levels not being the same in different industries.

Is there a Debt to Revenue, or Debt to Gross Profit, or a Debt to Net Income metric you like to assess?

The Return on Assets is quite low (3.34%) as can be expected in such a capital intensive business. Their Return on Equity is 7.62.

Is this then merely a Dividend investment?

By the way the RMS is -3.60 (using BMW Stock Screener) using a start date of Jan 1980.

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Author: kelbon Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 40877 of 41614
Subject: Re: Excelon - EXC Date: 12/30/2012 7:00 PM
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Is this then merely a Dividend investment?

You could do a lot worse than a 7% return in this low interest rate environment, which is what the dividend accounts for now and makes the assumption that the stock price is never going to rise.

Exelon has been caught in what could be termed a perfect storm; bad karma for nuclear power and unprecedentedly low natural gas prices. Whether either, or both, proves to be temporary is the issue. You make your choice and take your chances, but often both disparaging views and super-low prices tend to be soften.


Is there a Debt to Revenue, or Debt to Gross Profit, or a Debt to Net Income metric you like to assess?

No.

The most sensible approach, I think, is to think about debt on a case-by-case basis. A useful way to begin to assess debt levels is to look at averages across an industry, thus it would be plain as to whether a company was an outlier in this respect. As noted: Exelon's debt ratio is about average.


By the way the RMS is -3.60 (using BMW Stock Screener) using a start date of Jan 1980.

Yes, anyway you want to look at it, the stock price has taken a beating.

kelbon

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Author: rjf53 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 40911 of 41614
Subject: Re: Excelon - EXC Date: 1/13/2013 12:13 PM
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Shale hydrocarbons outside the US are a very iffy proposition.

More evidence to back up your assertion.

Glad I don't own TAG or NZ.

http://www.newswire.ca/en/story/1098099/tag-oil-receives-not...

B

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