Exelon Corporation (EXC), American Electric Power Company Inc (AEP): Not All Utilities Are Created Equal

It appears that no utility is immune from the devastating effects of a deteriorating business. In the company’s annual report, Exelon Corporation (NYSE:EXC) revealed that fiscal 2012 GAAP diluted earnings per share fell by more than 60% versus the prior year.

The company’s first-quarter results were equally concerning. Exelon Corporation (NYSE:EXC) reported a net loss in GAAP terms, compared to a $0.28 per-share profit in the first quarter last year.

On a non-GAAP basis, Exelon Corporation (NYSE:EXC)’s first-quarter earnings per share fell 18% year over year.

Exelon Corporation (NYSE:EXC) also provided poor guidance for the remainder of the current year. Management anticipates between $2.35 per share to $2.65 per share of operating earnings in 2013, representing a decline of 7% to 17% from fiscal year 2012 operating earnings.

Focus on the winners

I had previously owned Exelon for nearly three years, but sold it last year on concerns that the company’s dividend growth had stalled despite solid free cash flow generation. Perhaps management knew the company’s fortunes were about to turn.

Quite frankly, a utility should not have the amount of volatility in its underlying financial results than Exelon has in recent quarters. The business is virtually guaranteed; the industry itself is critical to the prosperity of our nation.

Investors simply don’t need to put up with a utility that reports losses and slashes its dividend by nearly half. There are plenty of other highly profitable, well-managed utilities that take their dividend obligations very seriously. Two of these, The Southern Company (NYSE:SO) and American Electric Power Company Inc (NYSE:AEP), maintain long histories of quarterly dividend payments, year in and year out, and should be given preference by investors interested in utility stocks.

The article Not All Utilities Are Created Equal originally appeared on Fool.com is written by Robert Ciura.

Robert Ciura has no position in any stocks mentioned. The Motley Fool recommends Exelon and Southern Company. Robert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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