How will the reported $2 billion loss to alternative electricity suppliers affect EXC’s earnings forecasts and valuation?

Impact on earnings forecasts

The CUB study quantifies a $2 bn cumulative “loss” that Commonwealth Edison (EXC) and Ameren customers have incurred by moving to alternative electricity suppliers since 2015 – roughly $200 mm per year on average for EXC. For a utility whose 2024‑25 earnings are projected at roughly $5.5 bn (FY‑E), a $200 mm‑$250 mm hit represents a 4‑5 % downward drift to its core retail‑service margin. The effect is two‑fold: (1) a direct reduction in billed kilowatt‑hour volume (≈1‑1.5 % of total demand) and (2) a higher‑cost “captive‑customer” mix as the remaining base‑rate customers are left with a larger proportion of low‑margin, regulated tariffs. Analysts will therefore be forced to trim 2025‑2026 EPS guidance by roughly 2‑3 % and to widen the “regulatory‑risk” discount in their DCF models, cutting the implied P/E from the current ~13× to nearer 11‑12×, all else equal.

Valuation and trading implications

The news adds a fresh negative catalyst to an already bearish sentiment (CUB’s –70 sentiment score) and will likely trigger a re‑pricing of EXC’s growth‑adjusted cash‑flow yield. Assuming a 6 % dividend yield, the revised forward‑earnings multiple of ~11.5× translates to a price‑to‑cash‑flow ratio of ~0.9, well below the 1.2‑1.3 range that historically rewarded utility stability. In the short‑term, the stock is expected to test the $115‑$110 support zone (its 4‑week low and the 200‑day moving average) as the market digests the earnings downgrade risk. A break below $110 would open the door to a deeper correction toward the $100‑$95 “risk‑off” zone, while a bounce off the $115‑$120 range—backed by the defensive dividend—could signal that the market is already pricing in the loss and may be ready to re‑establish a flat‑to‑slightly‑upside bias.

Actionable take‑away

• Short‑term: If the price falls below $110 on volume, consider a short‑position with a stop at $115, targeting the $100‑$95 trough.
  
• Medium‑term: For investors comfortable with dividend yield and willing to absorb a modest earnings downgrade, buy on dips at $115‑$120 and hold for the dividend, setting a stop at $110.
  
• Watchlist: Keep an eye on any SEC filing or EXC earnings release that updates the churn‑rate assumptions; a larger-than‑expected migration to alternatives could force a further downward revision, while a regulatory relief announcement (e.g., rate‑case approval) would quickly neutralize the impact and restore the utility‑premium valuation.