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Exelon (EXC) Upgraded To 'Buy' By Deutsche Bank With Dividend Cut Priced In

 November 26, 2012 01:25 PM
 


(By Balachander) Exelon Corp. (NYSE: EXC) shares were upgraded to "Buy" from "Hold" by Deutsche Bank analyst Jonathan Arnold, who says dividend cut fears present LT value opportunity.

"We have been in the negative or cautious camp on EXC all year, most notably given our EPS outlook after the June Analyst Day and views on valuation," the analyst said.

"With the stock down 34% YTD and 20% this month after CEO Crane cast doubts on dividend sustainability, however, we now see an opportunity for the value investor," Arnold wrote in a note.

The analyst said EXC has lagged utilities by 11% and the S&P by 20% in November, yet the outlook has actually improved slightly as gas/power prices have strengthened.

[Related -Bond Yields Rise On Stronger Economic Data]

"While our call may be early given dividend tax hike fears and EXC's own unresolved dividend overhang, we now see more risk in being too late," Arnold said. "Risks are weak power prices and increased retail competition."

As the stock has fallen and the yield premium has been removed, we think EXC's call option on power (and gas) recovery is now in the money, the analyst said.

Arnold maintained its 2013-14E EPS of $2.45 and $2.30, and raising 2015 to $2.50 on lower financing costs given the dividend cut he assumes in 2Q13.

The analyst raised his price target on the stock by $1 to $34.

The stock, which has been trading in the 52-week range of $28.40 to $44.45, gained 3.33% to trade at $29.52 on Monday.

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