Goldman Sachs Equity Research upgraded Exelon Corp. to "neutral" from "sell" based on the company's higher sum-of-the-parts value, potential upside to consensus estimates and a target price of $43 per share.
Goldman Sachs upgraded Exelon as it sees fewer negative catalysts ahead in the near term although the litigation around the nuclear subsidies remains a longer-term risk, worth 25 cents or more in the EPS per year through 2020. However, the analysts are of the opinion that it is one negative that may impact the company in the long run.
This year's PJM capacity auction, setting 2021-2022 pricing, could present modest headwinds given the data continues to indicate the market remains oversupplied. This negative catalyst will only impact Exelon after 2020.
The short-term for the company remains in good health with solid cash-flow metrics and significant capacity in the balance sheet. Goldman Sachs estimates Exelon subsidiary Exelon Generation Co. LLC's net debt/EBITDA at 2x-2.1x, below other independent power producers that target closer to 3x, implying $2.6 billion to $3 billion of incremental balance sheet capacity available.
As for the price/earnings multiples, Exelon is trading at a discount, which Goldman Sachs believes will converge as investor sentiment related to Exelon's IPP improves.