Maryland Legislation And $38B Investment Will Strengthen Battery Storage

Key Takeaways

• Legislative and regulatory progress in energy and capacity markets may boost Exelon's revenue and earnings potential.
  
• Strategic investments and focus on new business prospects position Exelon for sustained long-term revenue and net margin growth.
  
• Regulatory uncertainties, external factors, and rising interest expenses pose significant risks to Exelon's revenue, profitability, and future earnings stability.

Catalysts

A utility services holding company, engages in the energy distribution and transmission businesses.

• Legislative advancements in Maryland targeting energy security and battery storage development indicate new investment opportunities, likely boosting Exelon's revenue and earnings.
  
• The regional and federal regulatory progress, particularly in addressing PJM’s capacity market construct and large load growth, could enhance Exelon's future revenue streams and earnings potential.
  
• The commitment to a $38 billion investment plan over the next four years is projected to drive a 7.4% rate base growth, potentially increasing Exelon's revenue and supporting its earnings growth target of 5% to 7% through 2028.
  
• Exelon's strategic focus on new business prospects, with a $10 billion to $15 billion transmission opportunity beyond current plans, could significantly enhance revenue and drive long-term growth.
  
• Efforts to secure favorable legislation for corporate tax calculations and proactive management of financing needs, including debt and equity, aim to bolster Exelon's net margins and support sustainable earnings growth.

Exelon Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Exelon's revenue will grow by 3.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 11.4% today to 12.2% in 3 years time.
• Analysts expect earnings to reach $3.2 billion (and earnings per share of $3.06) by about May 2028, up from $2.7 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.6x on those 2028 earnings, up from 17.2x today. This future PE is lower than the current PE for the US Electric Utilities industry at 21.1x.
• Analysts expect the number of shares outstanding to grow by 0.95% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

Exelon Future Earnings Per Share Growth

Risks

• Regulatory and legislative reforms present uncertainty, which can impact Exelon's revenue and profit margins if rate-making mechanisms do not provide adequate compensation for the company's investments.
  
• Open rate cases and pending decisions from regulatory bodies pose risks to future earnings, especially if outcomes are unfavorable or result in delayed rate adjustments.
  
• External factors such as adverse weather conditions, commodity price volatility, and federal budget changes could increase operational costs and impact Exelon's revenue and net margins.
  
• Affordability pressures put stress on maintaining customer satisfaction and sales, which can squeeze margins and affect revenue if customers reduce energy consumption or if regulatory bodies pressure prices downward.
  
• Rising interest expenses due to higher levels of debt at increased rates could squeeze net margins and reduce profitability.

Valuation

• The analysts have a consensus price target of $47.534 for Exelon based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $52.0, and the most bearish reporting a price target of just $41.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $26.0 billion, earnings will come to $3.2 billion, and it would be trading on a PE ratio of 18.6x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of $46.29, the analyst price target of $47.53 is 2.6% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.