Utilities have always sparked my interest due to their extremely low volatility. Exelon (EXC) for example, has a Beta of just 0.53, making it fluctuate only half as much as the market. The recovery from the crash in 2008 hasn’t been so kind to Exelon and other utilities as it has been to other industries. Since 2007 the industry a whole has been down an alarming 27%, leading some columnists and publications to remain bearish on the energy sector. However, with Exelon’s recent purchase of Constellation energy and their management of the acquired assets, I believe the current price of $37 to be undervalued.

In 2011, Exelon Corp agreed to merge with Constellation energy – another energy provider based in the northeast. The merger instantly made Exelon America’s largest utility, and added a number of new plants to their portfolio. On Monday, Exelon agreed to sell its stake in 5 California power plants gained from the acquisition to the Japanese IHI corporation for an undisclosed sum. On the surface this looks like it would provide a boost to Q3 earnings, but let’s jump into the details a little further. Out of the five power plants, two were coal-based and three were bio-mass. The combined capacity of all five plants is 70 Megawatts, which is enough to power around 50,000 California homes. However, compared to the 17,000+ MW capacity of their 19 Nuclear power plants, the sale to IHI corporation is a drop in Exelon’s bucket. The sale will of course add more revenue, which at this point has not been quantified.

On August 9th, Exelon sold three coal power plants in Maryland to for $400m. Another sale of assets acquired by Constellation – But let’s dig deeper. Selling coal plants will not only increase Exelon’s cash on hand, but greens their portfolio of power generating plants. Why is this important? States can sue utilities for increased emissions level from their plants. The majority of US power comes from coal plants, but even clean coal is considered quite dirty by environmental groups. Dirty power pollutants have seen tightening regulations in recent years. Under the Clean Air Act, all coal plants must comply with tough new emissions standards by 2014. Exelon wins in two ways with this sale – $400m in the company and investor pockets and less revenue lost down the road to EPA compliance measures.

For the fiscal year 2012, Exelon projects that they will earn between $2.55 and $2.85 per share. Analysts expect the company to reach $2.75 EPS. As with many utilities, a big portion of investor gains from taking a stake come from the dividend paid and not just fluctuations in the stock price. Exelon’s dividend is yield is a healthy 5.61%, greater than 89% of it’s electric utility peers. The company has a long history of consistent dividends which shows no signs of slowing. With Exelon realizing the gains of plant sales in Q3 and a strategy focused on green energy, expect their stock to outperform the market.

Full disclosure: I currently have a stake in Exelon Corporation. I do not plan sell shares or buy any additional shares in the next 72 hours.