Excelon (EXC) rings in the New Year With a Rise.

Exelon (EXC) stock climbed 0.2 % this morning. According to our metrics, the company seems overvalued at today's prices. In the below analysis, we will put Exelon's valuation in the context of its poor growth indicators and mixed market sentiment, which are also strong drivers for share price.

Exelon Corporation, a utility services holding company, engages in the energy generation, delivery, and marketing businesses in the United States and Canada. The large-cap Utilities company is based in Chicago, United States and has 31,518 full time employees.

EXC's P/E Ratio Is Comparable to Its Sector Average

Compared to the Utilities sector's average of 26.37, Exelon has a trailing twelve month price to earnings (P/E) ratio of 21.0 and an expected P/E ratio of 18.3. P/E ratios are calculated by dividing the company's share price by either its trailing 12 month ($2.06) or forward earnings per share ($2.36).

Earnings is another term for the net profits left over after subtracting cost of goods sold, taxes, and operating costs from the company's recorded sales revenue. One way of looking at the P/E ratio is that it represents how much investors are willing to pay for every dollar's worth of the company's earnings. Since Exelon's P/E ratio is near its sector average of 26.37, we can deduce that the market is fairly valuing the company's earnings.

EXC Has an Alarming P/B Ratio

The price to book (P/B) ratio of a company is a comparison of the company's market capitalization versus its net asset, or book value. A ratio lower than 1 tells you that the equity market is undervaluing the book value of the company's assets, and ratios higher than 1 tell you that the equity markets are overvaluing the company in terms of its assets.

Of course, a company is worth much more than its assets alone, so the focus on P/B ratio is mainly to enable investors to single out undervalued securities that offer a margin of safety. Since Exelon's P/B ratio of 1.7 is higher than its sector average of 1.47, such a margin of safety does not exist for the stock.

EXC's Weak Cash Flow Generation Is Troubling

The table below shows that Exelon is not generating enough cash. A well run company will generally have cash flows that reflect the strength of its underlying business, and in Exelon's case, free cash flow is growing at an average rate of -288.8% with a coefficient of variability of 72.7%. We can also see that cash flows from operations are evolving at a -32.6% rate, versus 5.1%:

Exelon Is a Profitable Business

If you are looking to make EXC a long term investment, it's essential that you understand the viability of its business through a study of its margins. Gross margins tell you how much the company makes in profit when only the costs directly related to producing the goods or delivering the service are taken into account. Operating margins, on the other hand, factor in overhead costs so they tell you how effectively Exelon is run.

Exelon's Gross Margins

Exelon's Operating Margins

Exelon's cost of revenue is growing at a rate of 4.1% in contrast to 14.2% for operating expenses. Sales revenues, on the other hand, have experienced a 3.0% growth rate. As a result, the average gross margins growth is -2.7 and the average operating margins growth rate is -25.4, with coefficients of variability of 2.8% and 31.4% respectively.

Exelon Benefits From Positive Market Signals

The market sentiment regarding Exelon is overwhelmingly positive. The stock has an average rating of buy and target prices ranging from $51 to $39. EXC is trading -3.35% away from its target price of $44.73. 1.5% of the company's shares are tied to short positions, and 85.1% of the shares are held by institutional investors.