Happy birthday to you(tilities)
Q1 results are in, marking the last quarter before Exelon Corporation (NYSE:EXC) stock put Constellation on its books. At the time of its merger, Exelon Corporation (NYSE:EXC) released a fact sheet comparing the two companies 2011 assets and revenues as a teaser for market share and profits to come:
Source: Exeloncorp.com
According to 2011 statistics, Constellation’s addition would more than double sales, but also increase assets by a substantial 25%.
| Before Merger ($B) | After Merger ($B) | % Increase | |
|---|---|---|---|
| Assets | 55.1 | 68.9 | 25% |
| Revenue | 18.9 | 38.3 | 103% |
With Q1 results in, here’s how Exelon’s advancements actually stand:Source: Exeloncorp.com, Author’s calculations. Note: 2011 assets and sales
| Q1 2012 Before Merger ($B) | Q1 2013 After Merger ($B) | % Increase | |
|---|---|---|---|
| Assets | 77.6 | 78.2 | 1% |
| Revenue | 4.69 | 6.89 | 47% |
Source: SEC filings, e*trade.com, author’s calculations
Exelon Corporation (NYSE:EXC)’s March merger was followed close behind by Duke Energy Corp (NYSE:DUK)‘s Progress Energy merger. Another mega move, this merger turned Duke Energy Corp (NYSE:DUK) into the largest U.S. utility by asset class. Not to be left behind, the company produced its own fact-sheet for income-hungry investors:
Source: Duke-energy.com
Compared to Exelon Corporation (NYSE:EXC) stock, Duke’s merger went heavy on assets accumulation and light on revenue gains.
| Before Merger ($B) | After Merger ($B) | % Increase | |
|---|---|---|---|
| Assets | 57.9 | 90.6 | 56% |
| Revenue | 12.7 | 22.7 | 79% |
Source: Duke-energy.com, author’s calculations. Note: 2010 assets, 2009 sales
With Q1 earnings hot off the press, Duke’s assets have progressed beyond Progress’ projections, but sales haven’t lived up to expectations.
| Q1 2012 Before Merger ($B) | Q1 2013 After Merger ($B) | % Increase | |
|---|---|---|---|
| Assets | 61.8 | 113.7 | 84% |
| Revenue | 3.63 | 5.89 | 62% |
Source: SEC filings, e*trade.com, author’s calculations.
Are mergers worth it?
Exelon stock and Duke stock both lay claim to “largest utility” titles, but there are plenty of behemoths already around. As a quasi-control group, let’s compare adjusted EPS growth between Exelon Corporation (NYSE:EXC), Duke, FirstEnergy Corp. (NYSE:FE), National Grid plc (ADR) (NYSE:NGG), and American Electric Power Company, Inc. (NYSE:AEP). For Duke and Exelon stock, we’ll compare year-over-year Q1 growth to 2012 annual growth for FirstEnergy Corp. (NYSE:FE) and National Grid. Here’s how the companies compare:
| Total Assets ($B, most recent available) | Adjusted EPS Growth | |
|---|---|---|
| Exelon | 78.2 | (17.7%) |
| Duke Energy | 113.7 | (10.5%) |
| FirstEnergy | 50.4 | (16.7%) |
| National Grid | 33.5 | 14.0%* |
| American Electric Power | 54.4 | (35.3%) |
Source: Yahoo! Finance, e*trade.com, nationalgrid.com. *2012/2011 Half-Year Results
For investors, Duke and Exelon’s mergers haven’t hit home for EPS. However, FirstEnergy Corp. (NYSE:FE)’s and American Electric Power Company, Inc. (NYSE:AEP)’s results show that they aren’t alone when it comes to recent rough patches. With the smallest assets around, National Grid has managed to pull up adjusted EPS 14% in its most recent report.
Do mergers maximize wealth?
Anxious investors were salivating for major margin gains this quarter, but mergers don’t make money overnight. As Exelon’s CEO Christopher Cane recently said, “2012 was a difficult year on the economic front for our sector.” Exelon’s merger added much-needed diversity to its generation fleet, while Duke enjoys steadier sales from an influx of regulated subsidiaries.
Q1 results are in, but the jury’s still out on the ultimate earnings from Exelon Corporation (NYSE:EXC)’s and Duke Energy Corp (NYSE:DUK)’s mergers. Size is no replacement for excellent management and competitive advantage, and investors would do well to consider more than size alone when picking their next dividend stocks.
The article Did This Merger Rock Exelon Stock? originally appeared on Fool.com and is written by Justin Loiseau.
Motley Fool contributor Justin Loiseau has no position in any stocks mentioned, but he does use electricity.The Motley Fool recommends Exelon and National Grid plc (NYSE:NGG) (ADR).
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