Exelon Corporation (EXC)

Total return at 5 years: 11.1%/year = 7.1% appreciation + 4.0% dividend. The target price ($59) is ex-dividend; the $10 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $82 · Multiples $56) exceeds the market price ($42).

Today — fairly valued: at $42 trades ~24.9% below its value discounted to today (~$56); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — Infravalorado: the target price ($59) plus dividends yield above the required average return (10%) — the business compounds.

The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$36.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($42) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-0.6%/year) than we project (7.5%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$4.2 bn of owner earnings in year 5 (vs ~$6.3 bn of our base case). It recalculates if the DCF assumptions are edited.

A regulated utility is valued on P/E over adjusted earnings (equity-level): the value sits in the regulated base (rate base), which grows with capex at an allowed ROE. GAAP can be depressed by the mark-to-market of hedges → the adjusted figure is used. It returns capital via dividend (a dividend aristocrat); it may issue some equity to fund capex. Total return adds the dividend collected along the way. In edit mode, the metric, shares, dividend, and exit multiple can be adjusted.

A 100% regulated transmission-and-distribution utility (no owned generation, no unregulated-renewables arm and no competitive segment) is valued on P/E over attributable net income. The metric is the line the income statement itself labels "net income attributable to common shareholders," not a backed-out number: the concept is tagged and the two routes agree — $2,768M from fiscal 2025 plus $1,315M from first-half 2026 minus $1,300M from first-half 2025 gives $2,783M, and trailing-year pre-tax income ($3,366M) minus tax ($583M) gives the same number. There is no noncontrolling interest to subtract: the minority-interest concept has been zero since 2022 and consolidated equity matches the amount attributable to the parent ($29,698M at June 30, 2026). Rolling grid: the base year is the actual trailing year through June 30, 2026 and the projection consists of twelve-month windows (+1y…+5y). The Q2 2026 10-Q had not yet been ingested by the Commission's interface, so the accounting data layer was completed by reading the XBRL instance of the filing itself, which is cited in the sources. The gap between net income and after-tax operating income is not a non-recurring item but the financing charge of a balance sheet leveraged by design: trailing-year operating income ($5,269M) at the 17.3% effective tax rate gives $4,356M, and subtracting the trailing year's interest expense on borrowings ($2,190M) net of taxes and adding the rest of other income, the identity closes at the $2,783M of attributable net income. Gross debt at June 30, 2026 is $52,673M (long-term $50,313M, current portion $727M, short-term $1,243M and financing trusts $390M). The path anchors to current guidance (§5 R1): the July 30, 2026 communiqué reaffirms adjusted operating earnings of $2.81 to $2.91 per share for 2026 and a compound annual growth rate near the high end of the 5% to 7% range from 2025 to 2029, over adjusted operating earnings of $2.77 per share in 2025 and a four-year $41,300M capital plan that lifts the rate base 7.9% a year. The +1y window (second half of 2026 plus first half of 2027) is built from those levels: $1.53 per share of what remains of the guided fiscal year — midpoint $2.86 minus the already-published first half, $1.33 — plus $1.42 from first-half 2027 at the guided pace, i.e. $2.95. From there per-share growth decelerates smoothly from 6.6% to 5.0% by year 5, where the durable rate for a regulated network governs, not the guidance, whose horizon ends in 2029 (§5 R2). Year 1 grows 10.9% on the aggregate metric, and that invokes the §5 R3 rebound exception, not a reacceleration: the trailing accounting year carries charges the company identifies as non-recurring in its own reconciliation — $42M after-tax from the cost-management program in the second quarter of 2026, plus minor regulatory items — that are not projected forward. The reconciliation is published per share: trailing-year adjusted operating earnings are $2.79 per share ($2.77 from fiscal 2025 plus $1.33 from first-half 2026 minus $1.31 from first-half 2025) against $2.72 on the accounting line, a $0.07 difference. Measured on that adjusted base, the equivalent starting pace is +5.7% per share toward the $2.95 of the +1y window, within the guided 5% to 7% band. The base year is left on the accounting line, unnormalized, because it is the model's declared metric; the consequence is that the rebound shows up in year 1 rather than year 0, and it is disclosed here. Shares grow 1.8% a year: the financing plan calls for $3,400M of equity over four years, about $850M a year, which at the current price equals roughly 18 million shares over 1,028 million. Issuance already executed corroborates the pace — weighted-average diluted shares went from 1,012 million in the second quarter of 2025 to 1,028 million in the second quarter of 2026. The share path is a single one across the three scenarios (§6). With that, earnings per share go from $2.71 to $3.70 over five years. The base-year dividend is the declared trailing-year figure ($1.64: four payments of $0.40, $0.40, $0.42 and $0.42) and year 1 is the declared current rate, $1.68, which the board reaffirmed on July 28, 2026 at $0.42 per quarter. The trailing-year return earned on equity is 9.4% ($2,783M over $29,698M of common equity at close) and the path leaves it practically flat: earnings per share grow somewhat faster than book value per share because the issuance is placed above book value, and the return stays in line with the average of the nine approved distribution rate cases with a declared return (9.47%), below the transmission returns (10.35% to 11.50%) and below the method's 10% bar. The multiple compresses toward 16× (low half of the regulated-utility band, 15-18×, §4), consistent with that below-the-10%-bar return.

Today's multiple compresses on its own going forward as the metric per share grows. The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—. Total return adds the dividend collected; the required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $59 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $42, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $59 in 5 years plus $10 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $56. Against the current market price ($42), the margin of safety is 24.9% (trades below the maximum → there is margin) and the total return at that price would be 11.1% annually.

• Multiple vs. the peer group. 16× trailing-year attributable net income — within the regulated-utility reference band (15-18×, §4) and without a premium, consistent with an allowed distribution return below the 10% bar and without an unregulated growth arm to sustain a premium.
• Growth vs. multiple. The multiple compresses 16×→16× as the path converges to the durable rate of a regulated network, below the guided pace through 2029.
• Margin of safety. Base +7%/year in price (+11% with the dividend) in line with the average return (~10%), without being generous; the discount to today is moderate.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✕ ROIC exceeds the cost of capital (~10%)
• ✕ High incremental ROIC (compounding)
• ✓ CFROIC backs up the ROIC (100%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Regulated return (earned ROE vs. authorized band). Return earned on equity ~9.4% against an average of 9.47% across the nine approved distribution rate cases with a declared return (8.905% to 9.60% depending on jurisdiction) and against returns of 10.35% to 11.50% on transmission formula rates: the company earns what the regulator grants it in distribution, its dominant business.
• Value creation (ROE vs. the 10% bar). ~9.4% against the 10% bar: just below the method's floor — and the cause is the allowed return itself (9.47% average in distribution), not an execution failure. Value creation per dollar of new rate base is modest, consistent with a multiple without a premium.
• Earnings quality. The trailing year carries charges the company identifies as non-recurring in its own reconciliation ($42M after-tax from the cost-management program in the second quarter of 2026 and minor regulatory items): trailing-year adjusted operating earnings are $2.79 per share against $2.72 on the accounting line. Disclosed and left inside the base, not normalized.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

The engine of a regulated transmission-and-distribution holding company is the rate base multiplied by the return authorized by each regulator. Exelon grows by deploying capital ($41,300M in 2026-2029) that expands the combined rate base of its six subsidiaries (~+7.9% a year). It is capital-intensive: funded with debt and equity issuance ($3,400M planned over four years, ~1.8% a year of projected dilution), which is why free cash flow is negative by design — capex creates regulated rate base that earns an allowed return; the malinvestment test passes as long as the regulator recognizes the investment in rates.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Real, not nominal. Growth lives in the physical rate base (transmission and distribution infrastructure built across six jurisdictions), not in monetary revenue.
• Growth engine. Consolidated capital plan of $41,300M through 2029 (+7.9% a year of rate base) plus data-center demand in the ComEd/PJM territory as an additional declared driver.
• Sustainability. The 2025 earnings jump includes a non-repeatable weather tailwind (~$70M pre-tax at PECO/DPL); the test of the organic pace is the 2026 guidance ($2.81 to $2.91 per adjusted share), of which the first half carried $1.33 — the second half bears most of the year's growth.

• Relevant in 10 years (recurrence). Electricity and natural gas are about as recurring a demand as exists; data-center demand in the ComEd territory accelerates it. A regulated service with maximum predictability.
• Pricing power. Set by the regulator in each of the six jurisdictions — not market pricing power, but a guaranteed return within the regulatory framework, subject to the approval of each rate case.
• Moat and its direction. Wide moat (regulatory + network scale), stable. No higher-growth segment (unregulated renewables, competitive generation) to widen it beyond the purely regulated business.
• Cyclicality / sensitivity. Not very cyclical (regulated demand, mostly decoupled from weather/volume) but sensitive to interest rates (high leverage) and to regulatory decisions across six distinct jurisdictions.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Regulated return (earned vs allowed ROE)Earns 9.4% vs allowed 9.5%
• !Value creation (allowed ROE − 10% bar)-0.5pp
• !Leverage (net debt / EBITDA)5.6x
• ✓Predictability (% regulated + rate-base growth)100% regulated · rate base +$5.8 bn/year

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Leverage (regulated lens). High by design ($52,673M of gross debt, ~5.6× net debt to EBITDA), backed by a regulated rate base across six jurisdictions — judged against utility thresholds, not corporate solvency.
• Credit quality. Exelon's specific credit rating was not captured in this light extraction — gap disclosed, pending verification against the filing or a rating agency.
• Cash flow. Reported free cash flow for the trailing year is negative (−$1,916M: operating cash flow $7,212M minus capex $9,128M): growth capex (~$5,373M above maintenance) exceeds what operations cover — regulated investment funded with debt and equity, not cash stress.
• Financing of the capex plan. Funded with debt and with equity issuance ($3,400M planned over four years, ~$850M a year, projected dilution ~1.8%/year); depends on continued access to capital markets.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Skin in the game. Not identified in this light extraction — the compensation and insider-ownership section of the DEF 14A proxy was not anchored (the >5% institutional holders table was). Gap disclosed, pending a targeted reading.
• Capital allocation. Deploys capital almost entirely to the regulated rate base (trailing-year capex $9,128M) plus the dividend (~61% payout on trailing-year earnings per share); funds with debt and equity issuance, with no buybacks in this extraction.
• Integrity / candor. The 10-K discloses in detail the disallowance charge from ComEd's FERC audit ($70M) and the regulatory risks of each jurisdiction; the tone of the shareholder letter was not evaluated in this light extraction.

• No obvious discount source of the missing-buyers or motivated-sellers type: it is not a recent spin-off nor an uncovered stock, and the company reaffirmed its annual guidance in the July 30, 2026 communiqué.
• The multiple (16×) sits within the regulated-utility reference band and without a premium, consistent with an average allowed distribution return of 9.47% — which the company effectively earns (~9.4%) — below the method's 10% bar, and with the absence of an unregulated growth arm. It is not a discrepancy between perception and reality.
• The historical earnings path was uneven (+13.4% / +5.7% / +12.5%) and the trailing accounting year carries non-recurring charges that depress the base by $0.07 per share: it is more a case of lower visibility than a clear opportunity.

It is a mixed case: no strong identifiable discount source (§9: caution, it may not be cheap and only appear so), but it is not expensive either — the multiple, within the band and without a premium, looks reasonably calibrated to a lower return on capital, not an opportunity. The base return (+11% total) is modest, in line with the average return on stocks.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at +4%/year (+23% total): the margin of safety protects the downside. The bull (+14%/year, +92% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Rate cases across six distinct jurisdictions. The central disconfirmer: each jurisdiction can disallow expenses not deemed prudent; the 10-K itself documents a $70M disallowance charge from ComEd's FERC audit in 2025.
• ComEd's franchise with the City of Chicago. Terminable with one year's notice since late 2020, with a municipal purchase option for the system — an idiosyncratic risk for the group's largest territory (~30% of revenue).
• Dependence on third-party generation. Exelon does not generate electricity; if third-party capacity or storage prove insufficient relative to data-center demand, service could be constrained.
• Imperfect ring-fencing between Exelon and the subsidiaries. Despite ring-fencing, the subsidiaries' credit ratings could remain linked to Exelon's; loss of investment grade would require posting significant collateral.
• Extreme weather events. Geographic concentration in the Midwest and Mid-Atlantic, regions prone to severe storms; under Illinois law, ComEd could be liable for damages for extended outages.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  Fails the quality gate: ROE 9% does not clear the 10% bar (regulated return by design).

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 8% at a PEG of 2.1 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Not applicable — the Magic Formula excludes financials and regulated businesses (EBIT/EV does not capture the operating leverage).

• Howard Marks Perception vs reality + cycle

  The price discounts -1% vs our 8%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -0%/yr, bull-scenario ceiling +10%/yr over 5y → capital protected, asymmetry in your favor.

• Pat Dorsey Moat strength (Five Rules)

  A wide moat, stable; sources: intangibles, efficient scale, cost advantage, switching costs → passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -1%, within what we project (8%) — the story squares with the numbers.