Consolidated Edison is one of these cases, which grows when market is going up (because everything is going up) and going up when market is going down (safe low-beta business)… YTD shares are +20% and were even higher few months ago. Let’s analyze what’s going on in business.
Reminding, Consolidated Edison provides a wide range of energy-related products and services – mainly electrical and gas systems and steam production for New York City. Company was founded in 1823 year.
Well results for IH 2016 are not impressive in my opinion:
The main decline is in CECONY business, mainly due to weather revenues (warmer than average winter – c’mon is global warming coming or is it a one-off?) and higher operation & maintenance costs (Increased emergency response, municipal infrastructure support and stock-based compensation).
Well I am reading investor’s presentation about new rates, but I don’t really understand how it will influence business in future. Surely, New York City is doing really well, so people are coming to work etc., and I would expect higher usage. On the other hand it is mainly regulated business and for me it is hard to estimate impact.
Financial situation is very stable, which makes Con Edison a perfect dividend story.
Payout ratio is on acceptable level – safe, but also dividend yield at 3,5% is a decent result. Historically company was paying more, but also interest rates were higher.
P/E = 19
EV/EBITDA = 9.9
Rather expensive as business is regulated and slowly growing. Nevertheless I strongly prefer Con Edison to bonds in long perspective, due to higher and growing dividends.
Summing up, it is understandable that there are investors interested in buying shares of ED, but for me growth is very slow and business in long term rather unclear (safe, but looking at weak IH I am a little bit disappointed). If share price drops a lot I will look again.
Disclosure ED – no position