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When Will Exelon Power on Investor Returns?

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Part 6
When Will Exelon Power on Investor Returns? PART 6 OF 12

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.

Is Exelon’s Debt a Burden or a Growth Engine?

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Leverage

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.

For more on top utility stocks (XLU) (VPU) like Southern Company and NextEra Energy, check out Market Realist’s “Utilities by Leverage: Measuring SO, NEE, and DUK.”

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