Better Buy: Atlantic Power or Exelon?

Exelon stock is up 17.5% for 2013, while Atlantic Power prices have plummeted over 50%. But since Q1 announcements earlier this month, Exelon elation has tapered off as Atlantic excitement builds itself back. Let's take a closer look to see whether this latest quarter might offer clues for the future of these dividend stocks.

Exelon's build
Exelon beat on both the top and bottom lines, with sales up 9.7% and earnings even with 2012's first quarter. The main financial fudge for this quarter came from unfavorable hedges. Exelon stock took a one-time $235 million hit to account for recently rising natural gas prices. Natural gas predictions put many utilities' income in a tough spot this quarter, with PP&L's unregulated earnings down more than 50%.

With an eye to the past, this quarter proved lackluster compared to merger predictions outlined a year ago. Exelon's March 2012 merger with Constellation Energy was supposed to add on 25% in assets and double sales. In reality, the new and improved Exelon upped its assets by just 1%, while sales clocked in 47% above pre-merger numbers.

But Exelon wasn't alone with lackluster merger gains. Duke Energy partnered with Progress last year and, although its asset build exceeded expectations, sales have dropped 17 percentage points.

Looking ahead, nuclear-centric Exelon stock is likely to benefit from the natural gas price hike. With 20% of the nation's nuclear energy to its name, cost competitiveness is looking up.

The company's ascending share price and recently revised dividend puts its dividend yield at just 3.5%, below the 3.8% industry average but "best in show" for balancing books.

Is Atlantic back?
After dismal Q4 earnings, a dividend haircut, and a slew of lawsuits, Atlantic stock fell 50% in less than a month. But every company has a price, and Atlantic's Q1 earnings seem to have pulled the utility back from rock bottom.

Atlantic beat sales estimates by 15% and managed to pull a profit with $0.04 adjusted EPS. Analyst predictions of a $0.12 loss proved too pessimistic, as the utility acted on its strategic overhaul. Atlantic exited non-core assets, improved its cash flow, decreased its short-term debt, and advanced its renewable energy portfolio.

The company's major moves are paying off, but it's not all roses from here. The company cut its dividend 66% last quarter to decrease debt, but the plummet of its share price has it back at a potentially precarious 7.4% yield. The utility also relies on natural gas for 58% of its generating capacity, and rising prices could spell trouble for the future of its energy portfolio.

Atlantic or Exelon?
With Q1 earnings in, I don't see either utilities' share prices making major moves anytime soon. Exelon stock's hefty valuation took a slight hit, putting its price in line with its earning potential. Likewise, Atlantic's stock stumble saw some uplift as investors found a heartbeat in its newly balanced books and potential future in renewables.

But as a long-term investor, I turn to Warren Buffett for words of wisdom. In a 1989 letter to shareholders, the Oracle of Omaha wrote: "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."

For me, Exelon stock represents a wonderful company at a fair price, while Atlantic might be a fair company at a wonderful price. Regardless of quarterly gains or losses, Exelon's fundamentals create future opportunities that Atlantic's smaller scale, risky generation portfolio, and unproven management can't guarantee.

As the nation moves increasingly toward clean energy, Exelon is perfectly positioned to capitalize on having the largest nuclear fleet in North America. This strength, combined with an increased focus on balance sheet health and its recent merger with Constellation, places Exelon and its resized dividend on a short list of the top utilities. To determine if Exelon is a good long-term fit for your portfolio, you're invited to check out The Motley Fool's premium research report on the company. Simply click here now for instant access.

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Motley Fool contributor Justin Loiseau has no position in any stocks mentioned, but he does use electricity. You can follow him on Twitter, @TMFJLo, and on Motley Fool CAPS, @TMFJLo.The Motley Fool recommends Exelon. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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