According to the latest update from Donald Yacktman's holdings, Excelon Corp. (EXC, Financial) is the new holding which was bought in the range of $46-$51. The closing price of EXC on Feb/19/2010 is $44.88 which is around 10% cheaper than Donald Yacktman’s average buying price $48.
The below table summarizes the basic valuation ratio of EXC from 2005 to 2009.
All numbers in millions of US Dollars except price/Source: http://www.morningstar.com
The current relative valuation of EXC is cheapest for the last five years. The current FCF, Earning and Dividend yield are highest for the last five years. It is the value trap? Let’s try to analyze EXC from different angles such as competitive advantage, financial strength and future growth.
The moat of EXC comes from its nuclear fleet that can produce electricity with low cost and low carbon emission. The Q42009 from Tweedy Brown Fund, Inc said that “This low cost position allows it to earn operating margins substantially higher than other competitors.”. Let’s quickly confirm the above comment by taking a look at the below table.
Source:http://www.reuters.com
After analyzing the data, I hope that you will agree with me that EXC had certain competitive advantage that can generate substantial profit with good margin. How about the future? Is its moat durable? IMHO, the answer is “yes”. The high cost of building the nuclear plan creates a formidable barrier of entry around EXC against any potential competitor.
The balance sheet of Excelon is quite strong with the current ratio of 1.28 (i.e Excelon has $1.28 of short term asset for any $1 of its current debt). Its interest coverage 4.91 (Source: http//www.reuters.com). If you review Excelon 4Q09, you will notice that Excelon has $6.8billion untapped credit line. From the above numbers, I think I can sleep well at night :)
In " Exelon's Carbon Advantage", Jonathan Fahey stated that "When gas prices were at $14 per million Btu Exelon's shares traded at $92. Now, with prices at $5, Exelon trades at $50". The current price of mbtu is $3 and Exelon stock price is around $44. It is one of the risk that might affect the top line of Exelon. What are hidden weapons of Exelon to growth revenue in the next five to ten years? Nuclear Uprates, "Carbon Advantage", Gas price stability and the improvement of power price will drive the revenue growth of Exelon. In the mean time, you collect 5% of dividend every year. Note that the estimate value of EXC is $60 (Tweedy Brown Q42009) conservatively since the value doesn't count the "Carbon Advantage" positive potential upside.
Disclosure: Long EXC
The below table summarizes the basic valuation ratio of EXC from 2005 to 2009.
| Year | 2005 | 2006 | 2007 | 2008 | 2009/TTM |
| High Price | $57.5 | $63.6 | $86.8 | $92.1 | $59 |
| Low Price | $41.8 | $51.1 | $58.7 | $41.2 | $38.4 |
| Average/Current Price | $49.65 | $57.35 | 72.75 | $66.65 | $44.5 |
| Total Shares | 676 | 676 | 676 | 662 | 622 |
| Dividend | $1,070 | $1,071 | $1,180 | $1,335 | $1,385 |
| Free Cash Flow | -18 | 2417 | 1822 | 2746 | 2822 |
| Earning | 923 | 1592 | 2736 | 2737 | 2707 |
| FCF Yield | -0.05% | 6.23% | 3.70% | 6.22% | 10.20% |
| Earning Yield | 2.75% | 4.11% | 5.56% | 6.20% | 9.78% |
| Dividend Yield | 3.19% | 2.76% | 2.40% | 3.03% | 5% |
The current relative valuation of EXC is cheapest for the last five years. The current FCF, Earning and Dividend yield are highest for the last five years. It is the value trap? Let’s try to analyze EXC from different angles such as competitive advantage, financial strength and future growth.
The moat of EXC comes from its nuclear fleet that can produce electricity with low cost and low carbon emission. The Q42009 from Tweedy Brown Fund, Inc said that “This low cost position allows it to earn operating margins substantially higher than other competitors.”. Let’s quickly confirm the above comment by taking a look at the below table.
| Company | Industry | Sector | S&P 500 | |
| Net Profit Margin (TTM) | 15.63 | 8.28 | 1.3 | 9.66 |
| Net Profit Margin (5 year avg) | 12.42 | 8.52 | 4.66 | 12.23 |
| ROE (5 year average) | 20.81 | 16.01 | 6.43 | 12.47 |
After analyzing the data, I hope that you will agree with me that EXC had certain competitive advantage that can generate substantial profit with good margin. How about the future? Is its moat durable? IMHO, the answer is “yes”. The high cost of building the nuclear plan creates a formidable barrier of entry around EXC against any potential competitor.
The balance sheet of Excelon is quite strong with the current ratio of 1.28 (i.e Excelon has $1.28 of short term asset for any $1 of its current debt). Its interest coverage 4.91 (Source: http//www.reuters.com). If you review Excelon 4Q09, you will notice that Excelon has $6.8billion untapped credit line. From the above numbers, I think I can sleep well at night :)
In " Exelon's Carbon Advantage", Jonathan Fahey stated that "When gas prices were at $14 per million Btu Exelon's shares traded at $92. Now, with prices at $5, Exelon trades at $50". The current price of mbtu is $3 and Exelon stock price is around $44. It is one of the risk that might affect the top line of Exelon. What are hidden weapons of Exelon to growth revenue in the next five to ten years? Nuclear Uprates, "Carbon Advantage", Gas price stability and the improvement of power price will drive the revenue growth of Exelon. In the mean time, you collect 5% of dividend every year. Note that the estimate value of EXC is $60 (Tweedy Brown Q42009) conservatively since the value doesn't count the "Carbon Advantage" positive potential upside.
Disclosure: Long EXC
