Will Constellation Deal Power Up Nuclear ETFs?
April 28th 2011 at 5:32am by John Spence
Exchange traded funds (ETFs) that invest in nuclear energy have been hit hard by the crisis in Japan, but Exelon’s (NYSE: EXC) nearly $8 billion deal for Constellation Energy (NYSE: CEG) could provide a positive catalyst.
Exelon is also a top holding in many utilities ETFs.
“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 research note.
“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,” the analysts wrote. “We believe the companies have taken steps to address potential regulatory concerns, including mitigating competitive issues and maintaining a significant presence in Baltimore.”
Exelon is a component in 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).
“Constellation’s low-cost nuclear and coal-fired generating fleet and top-tier operations create sustained cost advantages,” noted Morningstar analysts in a profile of the company.
“Unlike most diversified utilities, Constellation’s nonutility business is primarily a customer supply operation supported by its merchant generation portfolio,” according to the profile. “Constellation is the largest retail power supplier in the United States with a 14% share of the commercial and industrial market. It also has a 5% share of the wholesale market.”
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.