EXC - Excelon

[Packer16]

These LEAPs have gotten incredibly cheap.  I think it from the arbs are shorting the stock because the Constellation deal looks like it is going through.  In addition, you have yield hogs selling calls to enhance the yield of the stock.  The implied volatilty is lowest I have seen it and the upside for a small upward move of the common is incredable.  If EXC hits the Morningstar FV, the 2013 45 LEAPs go up by 28x.  When the deal closes in Mar, the stock should be relieved of the arb short and if it approaches the level of Nov/Dec before some of the deal heardels were cleared it is a 6x play.  I have never seen this type of upside in an option that is only 10% OTM.

 

Packer 

[watsa_is_a_randian_hero]

This caught my attention...I like'd the payoff.

 

However, running the numbers implied vol is about 15%...probably reasonable for a utility to be slightly less than VIX. 

 

M*'s valuation implies 10x 2012 EV/EBITDA...This would put EXC at a 30% premium valuation to the median of its peers and a the highest multiple of its peers (AEP, D, DUK, EIK, ETR, FE, NEE, PCG, PPL, SO).  It is unlikely to reach that valuation.

 

However, I don't see it unreasonable for it to trade 50, which would still be a good payoff.

[Packer16]

Over 10x is not too bad.  This is similar to the current deflation trade FFH made in that the upside in reasonable scenario outweighs the downside considerably.  I think once the arbs are done, the pop should be to at least 45 and the LEAP to 3 with no good news which makes a 6x upside.

 

Packer

[mhdousa]

Over 10x is not too bad.  This is similar to the current deflation trade FFH made in that the upside in reasonable scenario outweighs the downside considerably.  I think once the arbs are done, the pop should be to at least 45 and the LEAP to 3 with no good news which makes a 6x upside.

 

Packer

Packer, are you adding to these at all with the price now at 0.30?

 

[boilermaker75]

When EXC's earning came out yesterday the stock was initially up, but on the conference call there was a mention of potentially cutting the dividend. From that point to the close EXC was down about 10%.

 

Today all the genius analysts have cut the price target, so EXC is currently down about another 2%.

 

I am going to start looking into EXC in case this is an over reaction. But I thought I would go ahead and start a thread to see if anyone else has looked at EXC?

 

I know that EXC generation is mainly nuclear so EXC has been hurt by the price of natural gas.

[JEast]

EXC is a great company.  However, NG prices have remained low for some time now and that has hurt them more than I would have anticipated.  Wholesale prices continue to remain low and appear that will continue for another year or two.  The value of their plants are also taking a slight hit due to the NG/wholesale connection.  However, the biggest issue was that the new CEO committed hari-kari (in my view) on the dividend.  The previous CEO has indicted that the dividend was super solid and sacrosanct.  For example, the previous CEO John Crowe (very good CEO) said, 'Exelon is safer than gold, it's got more upside than gold and it pays a 5% dividend, which is damn hard to get out of gold.'

 

In other words, the story has changed and folks are selling.  After the dividend is cut, which appears in the cards, a good candidate to keep on the radar over the next few years.  I previously had a hard book of around $26 with some unique items for the decommissioning trust that looks overfunded.  However, retirement liabilities keep creeping up so it may be a wash.

 

 

Cheers

JEast

[seeker]

Anyone looking at the equity? Seems to be cheap and undervalued. Thesis seems to be that if nat gas/energy prices pick up, the rise in nuclear could shoot the stock back up from its drought. Seems like the utilities business would provide a decent floor. The nuclear plants seem to be a good competitive advantage if you believe energy prices return to marginally higher levels. I've seen a lot of people complain about how the company has been run but seems like they are taking the right steps by shifting capex away from nuclear and throwing it to higher growth/profitable areas. Given the low cost of running the plants it would seem like they can quickly target an area of investment and throw cash towards it.

[SI]

Sorry to be too fine on the details but two misspellings: it is John Rowe and Exelon.

 

EXC's problem is as much nat gas as asset impairment that results from it including funding nuclear decommissioning.  With $1.50 in regulated earnings, the market is ascribing $5 to the generation arm less its liabilities.  This is the #1 generator in the country with some low cost assets. One real problem is that power demand from conventional generation isn't growing. Distributed solar was called out as a threat even in Rowe's days at the helm which has the market probably over-thinking tail risk alongside JEast's call on the real bogeyman - nat gas.