Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today - June 2016. By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Exelon Corporation (EXC) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Exelon Corporation is a utility services holding company. The Company operates through nine segments consisting of Exelon Generation Company, LLC’s (Generation’s) six power marketing segments, including Mid-Atlantic, Midwest, New England, New York, ERCOT and other regions; Commonwealth Edison Company (ComEd); PECO Energy Company (PECO), and Baltimore Gas and Electric Company (BGE). Its Generation segment consists of generation, physical delivery and marketing of power across geographical regions. Its ComEd segment consists of the purchase and retail sale of electricity and the provision of electricity transmission and distribution services to retail customers. Its PECO segment consists of the purchase and retail sale of electricity and the provision of electricity distribution and transmission services. Its BGE segment consists of the purchase and retail sale of electricity and natural gas, and the provision of electricity distribution and transmission and gas distribution services.
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Downloadable PDF version of this valuation:
ModernGraham Valuation of EXC – July 2016
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
What kind of Intelligent Investor are you?
| Defensive Investor; must pass 6 out of the following 7 tests. | ||||
| 1. Adequate Size of the Enterprise | Market Cap > $2Bil | $32,627,219,062 | Pass | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 0.83 | Fail | |
| 3. Earnings Stability | Positive EPS for 10 years prior | Pass | ||
| 4. Dividend Record | Dividend Payments for 10 years prior | Pass | ||
| 5. Earnings Growth | Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end | -47.51% | Fail | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 17.56 | Pass | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 0.36 | Pass | |
| Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor. | ||||
| 1. Sufficiently Strong Financial Condition | Current Ratio > 1.5 | 0.83 | Fail | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | -12.45 | Fail | |
| 3. Earnings Stability | Positive EPS for 5 years prior | Pass | ||
| 4. Dividend Record | Currently Pays Dividend | Pass | ||
| 5. Earnings Growth | EPSmg greater than 5 years ago | Fail | ||
Stage 2: Determination of Intrinsic Value
| EPSmg | $2.09 |
| MG Growth Estimate | -4.25% |
| MG Value | $0.00 |
| Opinion | Overvalued |
| MG Grade | D+ |
| MG Value based on 3% Growth | $30.28 |
| MG Value based on 0% Growth | $17.75 |
| Market Implied Growth Rate | 4.53% |
| Current Price | $36.67 |
| % of Intrinsic Value | N/A |
Exelon Corporation does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $3.07 in 2012 to an estimated $2.09 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 4.53% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.
Exelon Corporation scores quite poorly in the ModernGraham grading system, with an overall grade of D+.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | -$6.83 |
| Graham Number | $36.29 |
| PEmg | 17.56 |
| Current Ratio | 0.83 |
| PB Ratio | 0.36 |
| Current Dividend | $1.24 |
| Dividend Yield | 3.38% |
| Number of Consecutive Years of Dividend Growth | 0 |
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Useful Links:
| ModernGraham tagged articles | Morningstar |
| Google Finance | MSN Money |
| Yahoo Finance | Seeking Alpha |
| GuruFocus | SEC Filings |
Most Recent Balance Sheet Figures
| Balance Sheet Information | 3/1/2016 |
| Total Current Assets | $11,364,000,000 |
| Total Current Liabilities | $13,770,000,000 |
| Long-Term Debt | $29,955,000,000 |
| Total Assets | $111,742,000,000 |
| Intangible Assets | $6,688,000,000 |
| Other Long-Term Liabilities | $17,684,000,000 |
| Shares Outstanding (Diluted Average) | 925,000,000 |
Earnings Per Share History
| Next Fiscal Year Estimate | $2.02 |
| Dec2015 | $2.54 |
| Dec2014 | $1.88 |
| Dec2013 | $2.00 |
| Dec2012 | $1.42 |
| Dec2011 | $3.75 |
| Dec2010 | $3.87 |
| Dec2009 | $4.09 |
| Dec2008 | $4.13 |
| Dec2007 | $4.05 |
| Dec2006 | $2.35 |
| Dec2005 | $1.36 |
| Dec2004 | $2.78 |
| Dec2003 | $1.38 |
| Dec2002 | $2.22 |
| Dec2001 | $2.22 |
| Dec2000 | $1.44 |
| Dec1999 | $1.45 |
| Dec1998 | $1.12 |
| Dec1997 | -$3.40 |
| Dec1996 | $1.12 |
Earnings Per Share – ModernGraham History
| Next Fiscal Year Estimate | $2.09 |
| Dec2015 | $2.19 |
| Dec2014 | $2.20 |
| Dec2013 | $2.58 |
| Dec2012 | $3.07 |
| Dec2011 | $3.92 |
| Dec2010 | $3.90 |
| Dec2009 | $3.68 |
| Dec2008 | $3.29 |
| Dec2007 | $2.71 |
| Dec2006 | $2.03 |
| Dec2005 | $1.91 |
| Dec2004 | $2.13 |
| Dec2003 | $1.78 |
| Dec2002 | $1.88 |
| Dec2001 | $1.33 |
| Dec2000 | $0.71 |
Recommended Reading:
Other ModernGraham posts about the company
Other ModernGraham posts about related companies
Disclaimer:
The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.
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