Exelon Reports Strong Full-Year Earnings, Extends 6%-8% Growth Outlook

We are reaffirming our $41 per share fair value after Exelon reported 2022 full-year adjusted earnings per share of $2.27 up from $1.83 in 2021. Earnings in 2021 included the now-divested Constellation business. Management initiated 2023 full-year earnings guidance of $2.30-$2.42 per share, which we view as achievable.

Exelon announced a 7% increase in the 2023 dividend to $1.44 per share annualized. We expect dividend growth in line with earnings growth during at least the next four years. Our narrow moat and stable moat trend ratings remain unchanged.

Management reaffirmed and extended Exelon’s 6% to 8% annual earnings growth target through 2026. We expect Exelon to achieve the midpoint of that target. Earnings growth is driven by $31 billion of capital investments from 2023-26, up more than $2 billion from its most recent plan. We estimate this supports 8% rate base growth.

Exelon had four constructive rate settlements in 2022. This should continue to boost Exelon’s consolidated earned return on equity, which was 9.4% in 2022 and within management’s 9%-10% target range.

We are watching key developments in Illinois, where subsidiary ComEd filed a rate case seeking a 10.5% allowed return on equity, or ROE, gradually increasing to 10.65% by the end of the four-year filing. We expect ComEd’s awarded allowed ROE to be more in line with current industry-allowed ROE in the mid-9% range. This is still well above ComEd’s recent allowed returns on equity, which have been significantly below peer averages given their link to the 30-year U.S. Treasury yield. We expect a commission decision in December with rates effective January 2024. Negotiations for a new franchise agreement in Chicago continue. We expect ComEd and key stakeholders to reach a new franchise agreement.

Improved returns on equity at ComEd, favorable weather, and operating cost efficiencies helped earnings in 2022. Higher financing costs partially offset these benefits.