Exelon Corporation Energy Group

Utilities Sector Overview Utilities stocks are popular thanks to consistent returns, low operational risk, and a constant demand for energy The utility sector is dependent on a variety of factors Broader economy (industrial activity, housing) Climate/weather Fuel costs Two markets: regulated and unregulated Several themes moving forward Yields Environmental regulation Natural gas prices

Company Overview Exelon is an American utility services holding company, with three primary subsidiaries: Exelon Generation, Commonwealth Edison, and PECO With 35,000 megawatts of capacity and operations in 47 states, Canada, and D.C., it is the largest competitive U.S. power generator Has by far the largest fleet of nuclear reactors and plants (17 reactors, 10 plants) in the U.S., third largest in the world

Recent Developments Natural gas supply glut has placed immense pressure on Exelon’s businesses in unregulated markets for the past few years Has lowered margins significantly for nuclear fleet and gas distribution business Resulting losses have led to an announcement of a dividend cut on Feb 7 to ensure investment grade rating With significant overhang gone, stock is at an attractive valuation, still yields 4% on dividend Two primary catalysts moving forward: natural gas prices, environmental legislation Cap and trade legislation could boost operating income by 36% Increased natural gas prices would alleviate margin woes

Natural Gas Outlook Improvements in technology have led to a surge in natural gas supply, price dropped 88% from 05’ to 12’ Surge in price past half year, though there remains a near term ceiling of approximately $4 due to cost of coal However, changing infrastructure and additional environmental legislation are replacing coal and increasing demand for natural gas Potential to export natural gas, storage limits, and cost of productions are also factors that will be affecting natural gas prices Outlook for increased gas prices by 2014/2015 are relatively optimistic

Price Charts

Comparable Companies EXC AEP SO DUK NEE Price $30.62 $45.13 $44.11 $68.06 $72.60 52 Wk Range 28.40-39.95 36.97-45.48 41.75-48.59 59.63-71.13 59.10-72.92 Market Cap 26B 22B 39B 48B 31B EV 44.65B 40B 59B 85B 58B EV/EBITDA 6.82 8.31 9.03 19.19 10.62 P/E 12.33 14.4 16 15.6 14.7 Sales Growth % 25.36 -1.13 -6.34 35.07 -7.07 EBITDA Growth % -3.52 2.76 3.98 12.75 -2.94 EBITDA Margin % 20.77 31.68 35.56 35.31 35.41 RoIC 3.71 4.85 5.62 5.24 RoE 6.48 8.42 12.28 5.57 Div. Yield % 4.0* 4.2 4.4 4.5 3.3 Total Debt/EBITDA 3 3.87 3.43 6.65 5.35

Valuation Segment Valuation Method Statistic Multiple Value $35.21 15% Generation 2013E EBITDA $4,573.00 8.9x $40,699.70 ComEd 2013E Earnings $256.56 14.8x $3,797.09 PECO $213.00 $3,173.70 Total Firm Value $47,670.49 Less: Net Debt ($17,603) Total Equity Value $30,067.49 Shares Outstanding 854 SOTP Share Price $35.21 Current Share Price $30.59 Premium/(Discount) to Market 15%

Risks Extended glut in natural gas would prevent margin improvement and earnings growth Climate can significantly affect demand i.e. most utilities underperformed the S&P in 2012 due to an unusually warm winter Changes to nuclear regulations could increase costs

Conclusion Cheap valuation, steady cash flows and dividend, and future catalysts make EXC an attractive long term hold We recommend purchasing a full position