EXC 3Q2017: Upside from FERC redesign of power pricing may boost EXC by 36%

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Auvila_EXC_Note_2017_3Q_Earnings_2017_11_02

Excerpt:

Market Price (11/2/2017): $/share; ST-Target: $/Share; NIV: $/Share

  • 3Q2017 results and earnings call didn’t change our thesis that EXC’s endgame is to create optionality for ExGen
  • To do so, we believe that EXC plans to use ExGen cash flow to propel Utilities’ CAGR in AEPS at some 6%-8% through 2020, while lagging dividend CAGR at 2.5%, allowing Utilities dividend payout to go from almost 100% to about 77%, making it possible for Utilities to self-fund equity needs beyond 2020
  • Key to this strategy is to ensure ExGen cash flow, which drives need for very high hedging levels far in advance
  • We look for EXC to expand its Retail business, curtail its hedging program commensurately, and potentially take a more open position
  • The plan also requires EXC to continually make timely regulatory filings to ensure returns consistent with authorized ROEs
  • We believe that EXC’s next major acquisition would continue in the utility space
  • EXC has upside from resiliency pricing, if FERC gets there.

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