Is Exelon’s Debt a Burden or a Growth Engine?
Exelon’s debt profile
With its $36-billion market capitalization, Exelon (EXC) is one of the largest utility holding companies in the US. At the end of 2Q17, Exelon had total debt of $36 billion, and so its debt to market capitalization ratio stands at 1x.
Exelon’s total debt rose significantly after completing the Pepco Holdings acquisition last year.
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Exelon’s net-debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) ratio, which indicates how many years a company would take to repay its debt keeping debt and EBITDA constant, stands at 3.7x. The ratio also tells us how swollen a company’s balance sheet is. A higher ratio could be alarming for investors.
Exelon’s leverage ratio seems better than those of peers, as the industry average is 4.0x–4.5x. FirstEnergy’s (FE) net-debt-to-EBITDA ratio at the end of 2Q17 stood at ~5.7x. Another competitive utility and Exelon’s peer Public Service Enterprise Group (PEG) has its leverage ratio near 3.8x.
Exelon’s debt-to-equity ratio at the end of 2Q17 stood at 1.3x, which appears to be on the higher side compared to peers. On average, utilities have a ratio near 1.1x. Notably, at the end of 2Q17, FirstEnergy (FE) had a debt-to-equity ratio of over 3.6x, while Public Service Enterprise Group (PEG) had a ratio of 1.0x. PEG thus seems financially sound compared to its peers based on its debt profile.