Some Wall Street analysts are bullish on the merger of Exelon (NYSE: EXC) and Constellation Energy (NYSE: CEG) in the wake of the deal’s announcement Thursday.
The deal could provide a catalyst for nuclear and utilities exchange traded funds (ETFs) such as Utilities HOLDRS (AMEX: UTH), Market Vectors Uranium + Nuclear Energy ETF (NYSEArca: NLR), Utilities Select Sector SPDR Fund (NYSEArca: XLU), Vanguard Utilities ETF (NYSEArca: VPU), iShares Dow Jones U.S. Utilities (NYSEArca: IDU) and iShares S&P Global Nuclear Energy Index (NYSEArca: NUCL).
Combining Exelon and Constellation “would have a solid strategic rationale bringing together the largest U.S. merchant generation fleet and the largest retail electricity supplier,” said Deutsche Bank analysts in a note.
“Exelon’s generation would likely capture incremental margins through Constellation’s retail sales channels while CEG’s retail business – effectively a short power position – would arguably be more manageable aligned with Exelon’s generation,” the wrote, adding downside risks for Exelon include weaker power markets, lower sales, higher costs and higher financing requirements.
“Both Exelon and Constellation have long sought merger partners. Given the pressure on Exelon’s earnings outlook created by anemic power prices, it makes sense that the company should seek to expand its regulated utility footprint while also adding a significant customer-facing presence,” said analysts at BMO Capital Markets in a report.
“From Constellation’s perspective, in addition to the share price premium and dividend increase, Exelon brings hard assets to support its competitive energy products business,” they said.
The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.