Exelon: defensive stock

During the period of market turbulence, trading ideas in the form of defensive stock are in demand. Such an option may be the utility sector, more precisely, the company Exelon, which is engaged in the transmission and sale of electricity in the United States. It is 10.3 million consumers in six American states. 

Strengths of the issuer:

• dividend yield of at least 3.2%, which is higher than the average levels in the industry;
• margin of net profit growth in 2022 due to low costs in 2021 and acceptable electricity tariffs compared to competitors in the USA;
• the main part of the generating business is under tariff regulation, which makes the company’s shares a real defensive asset;
• effective first quarter: net adjusted earnings per share of $0.64 versus a loss of $0.06 for the same period last year. Revenue – $5.4 billion against $4.6 billion according to forecasts.

Risks:

• inflation in the USA. One of the main threats, specifically for Exelon, is the inflationary race that reduces the attractiveness of the securities in terms of dividends;
• an increase in the interest rate. A negative factor for assessing the marginality of net profit is that the cost of debt will increase. 

The risks are somewhat mitigated by two points: 

a) the Fed rate growth trend will probably end by the middle of the second quarter of 2023;

b) Exelon has one of the lowest electricity tariffs in the sector, so inflation risk has a limited impact on pricing. 

The company’s shares are trading at $43.86 and have a growth potential of 16-18% to $51-52. 

The MACD indicator starts to grow in the negative zone and forms a buy signal. The Stochastic oscillator continues to grow and confirms the buy signal.