US Nuclear Power Producers Are Asking for State Help
If nuclear power plants shut down, that power generation share is expected to be eaten up by coal or natural gas.
Exelon (EXC), the largest nuclear power generator in the US, has warned it could close its Three Mile Island nuclear plant in Pennsylvania if it doesn’t receive state aid.
Hybrid utility stocks are currently offering very attractive potential upsides compared to utilities at large.
Exelon (EXC) stock has shown tremendous momentum in the last few weeks. Since its recent low on May 11, 2017, EXC stock has managed to rise more than 10% while the Utilities Select Sector SPDR (XLU) rose 5%.
Hybrid utility FirstEnergy (FE) is presently trading at one of the highest dividend yields of 4.9%.
Public Service Enterprise Group (PEG) paid the most dividends to shareholders in the last three years.
Exelon’s (EXC) leverage ratio is about 3.8x. The industry average stands around 3.5x–4.0x.
Due to heavy infrastructure requirements, utilities (XLU) generally carry large amounts of debt on their books.
With a $34 billion market capitalization, Exelon (EXC) is the largest competitive utility.
Hybrid utilities derive a relatively high portion of their earnings from competitive operations.
Hybrid utilities are among the handful of utilities that are trading at attractive valuations compared to utilities (XLU) at large.
Exelon (EXC) seems to have a relatively clean generation mix compared to peers.
Exelon (EXC) has outperformed peers in terms of total returns in the last 12 months.
US utilities including giants like Duke Energy (DUK) and Southern Company (SO) have done fairly well in the last few months compared to broader markets.
According to Wall Street analysts, Southern Company (SO) has a price target of $51.22 compared with its current market price of $51.53. This implies an estimated downside of 0.6%.
With a market cap of $51 billion, Southern Company (SO) has one of the highest yields in the utilities sector. However, its dividend growth rate was generally on the lower side of the peers’ average.
According to the EIA, natural gas accounted for 34% of the total power produced in the US in 2016. Coal accounted for 30%, renewables produced 15%, and nuclear produced 20% of total power in 2016.
Southern Company (SO) stock is trading near its levels at this point in 2016. It has severely underperformed the Utilities Select Sector SPDR ETF (XLU) in the last year.
Southern Company’s (SO) PE is ~19x, and Dominion Energy’s (D) PE multiple is near 23x.
Southern Company (SO) stock rose after reaching a settlement with Toshiba. Toshiba agreed to pay SO ~$3.7 billion for the unfinished construction of its Vogtle nuclear power plant.