Pepco Holdings Inc.POM

Morningstar Rating

Stock Research and Analysis

by Morningstar Equity Analysts

A fresh round of rate cases has enhanced Pepco Holdings' earnings power but will not suffice to strengthen returns on invested capital, in our opinion. We believe some of Pepco's utilities peers offer more compelling potential at comparable risk.

Pepco's Read more

Bulls Say

Pepco's regulated electric and gas utilities operate in generally constructive regulatory environments.

The firm's competitive energy business offers Pepco a growth platform to compensate for its slower-growth regulated businesses.

With 70% of operating earnings from regulated assets and a new rate decoupling mechanism, Pepco offers relatively stable and predictable cash flows.

Pepco represents a steady income-producing investment. Read more

Bears Say

Demand growth in the firm's regulated service territories should trend in the low-single-digits in the years ahead.

With two thirds of Conectiv's wholesale power capacity fueled by natural gas, the company is at a disadvantage relative to peers with lower-cost facilities.

Conectiv sells a large portion of its generation output to supply provider-of-last-resort service to other Pepco subsidiaries. When these contracts expire, Conectiv may find it difficult to retain customers in a fully competitive market. Read more

Strategy

Pepco aims to increase its regulated earnings via rate base additions and higher rates. The firm's unregulated segment follows a conservative strategy, thoroughly hedging its power output and fuel requirements. Read more

Management

CEO and chairman Dennis Wraase, who had worked at the firm since 1974, retired and was replaced by Joseph M. Rigby on March 1. Rigby has worked with Wraase for the past six years, during which management achieved returns on invested capital that generally Read more

Profile

Pepco Holdings is a holding company for five energy-related subsidiaries. Pepco and Conectiv Power provide regulated energy-delivery services to Maryland, the District of Read more

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