Shares of top nuclear power generator Exelon Corporation (NYSE:EXC) have fallen about 10% over the past 12 months. However, performance had been much worse as the stock bottomed out last November, amid falling natural gas prices and a rumored dividend cut. Since the fallout, Exelon Corporation (NYSE:EXC) shares have risen nearly 20% as investors have adjusted to the reality of the new dividend rate. The stock has also been helped by a steady rise in the price of natural gas.
As you can see in the following chart, the U.S. Natural Gas Electric Power Price has a noticeable impact of the price of Exelon’s stock:
US Natural Gas Electric Power Price data by YCharts
While the correlation isn’t perfect, there is a noticeable link with both recently trending higher. You see, Exelon’s business might be powered by nuclear, but power prices are being fueled by the shift toward natural gas. As such, Exelon’s stock prices seems to move along with the price of natural gas.
Given falling rig counts, production declines, and increased demand, natural gas prices have the potential to head even higher. However, growth driven by commodity price isn’t true growth. What would make Exelon Corporation (NYSE:EXC)’s stock a long-term buy is if the company had a plan to grow its earnings outside of the noise of commodity volatility.
Its industry peers seem to have a much more visible growth plan. Take Dominion for example. The company is executing on a growth plan to grow its earnings by 5%-6% annually through 2017. To get there the company will spend about $3 billion per year on a variety of projects specifically designed to add to earnings.
It’s a similar story at NextEra Energy, Inc. (NYSE:NEE). The company has a four-year plan to spend upwards of $23 billion geared to grow its earnings. As it does, the company believes it can grow earnings by 5%-7% per year through 2016.
Both Dominion and NextEra Energy, Inc. (NYSE:NEE) expect that this earnings growth will drive dividend growth, something Exelon investors will likely not hear about for quite some time. Therein lies the problem, without visible earnings and dividend growth, it’s tough to be overly excited to buy Exelon’s stock. It’s really tough to grow when the company isn’t spending a whole lot of its capital on growth projects.
While Exelon Corporation (NYSE:EXC) will be spending $575 million to grow its solar business this year, it’s only planning to spend about $100 million in each of the next two years. Further, there’s virtually no spending to grow its wind generation which has been a key driver for NextEra’s business.
It is possible that the company will decide to buy rather than build. Just the other day BP plc (ADR) (NYSE:BP) put its wind assets on the market. The company is seeking $3.1 billion for its 2,600 megawatts of current and yet-to-be-built, wind-generating capacity. Those assets would really boost the company’s wind capacity.
