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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: of 41634  
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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