Monday, November 12, 2012

Exelon - Time to Buy?

What is going on with Exelon stock lately?  It has dropped from almost $40 per share to about $30 per share over the past few months.  I find it surprising to see such a dramatic drop simply because the company honestly may have to cut the dividend.  This is a well run company with a great balance sheet and a tight cost structure.  There is a solid basis for the value of the shares in the high book value and there is every expectation that things will turn around for the company as power prices rise. 

Power prices are surely the bigger issue though I see much discussion of the dividend lately.  If power prices increase, Exelon will have a massive windfall.  Their low-cost nuclear and gas plants are positioned to be highly profitable now and when natural gas prices increase.  The regulatory impact from stricter emissions standards targeting coal plants can only help Exelon as well.  It seems that almost all of the negative possibilities have already been priced into this stock and I'm very confident that Exelon will be a solid dividend producer in the future and that the stock will rise above the $40 levels of a few months ago.

I would accumulate shares at any price below $35 and keep an eye on news coming out for this company.  It may be that they do cut the dividend but it won't be for several months and it may not be cut at all.  Even if the dividend is cut and you have it below $35 you will be getting a healthy dividend.  Yes 3-4% is less than 6-7% but in this environment that is a rich dividend.

Disclosure: I work for Exelon and own Exelon stock.

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