A First Look at Consolidated Edison. Hint: buy under $40

Bonds outstanding: $475 million

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Not much is coming due anytime soon.  This is good for dividend safety.

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What the company does – Consolidated Edison is a holding company for two regulated utilities: Con Ed of New York and Orange & Rockland. These utilities provide steam, natural gas, and electricity to customers in southeastern New York–including New York City–and parts of New Jersey and Pennsylvania. The company’s electric utility operations generate more than three fourths of Con Ed’s operating revenue. The remainder comes from an energy marketing business and infrastructure investments.

Morningstar’s take – Consolidated Edison’s 200-year-old wires-and-pipes business generates dependable earnings and dividends. Furthermore, New York’s need for significant infrastructure should provide growth investment opportunities for Con Ed over time, supporting long-term earnings and dividend growth.

DIVIDEND RECORD – Consolidated Edison is a slow and steady dividend grower typical of century old utilities companies

Dividend: $0.60 quarterly

Dividend yield: 4.1% ($2.40 annual dividend/$58.38 share price)

Dividend payout ratio: 67% using Google Finance’s recent EPS of $3.56 or 72% using the company’s average adjusted EPS of $3.35.  ED is a dedicated dividend payer.

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EARNING POWER – $3.35 average adjusted earnings per share @ 292.2 million shares

(Earnings adjusted for changes in capitalization)

EPS

Net income

Shares

Adjusted EPS

2006

$2.95

$737 M

250 M

$2.52

2007

$3.47

$929 M

267 M

$3.17

2008

$4.37

$1,196 M

274 M

$4.08

2009

$3.14

$868 M

276 M

$2.96

2010

$3.47

$992 M

286 M

$3.39

2011 (est)

$3.95 (est)

$1,160.687 M

292.2 M

$3.95 (est)

EPS

Net income

Shares

Adjusted EPS

2011 Q1

$1.06

$311 M

294 M

$1.06

2011 Q2

$0.56

$165 M

294 M

$0.56

2011 Q3

$1.30

$383 M

295 M

$1.30

2011 Q4 (est)

$1.03 (est)

$301.687 M

292.2 M

$1.03 (est)

2011 total (est)

$3.95 (est)

$1,160.687 M

292.2 M

$3.95 (est)

Six year average adjusted earnings per share is $3.35

Consider contrarian buying below $26.80 (8 times average adjusted EPS)

Consider value buying below $40.20 (12 times average adjusted EPS)

Consolidated Edison is currently trading at 17.42 times average adjusted EPS.  This is still priced for investment, but it is getting close to speculative pricing.

Consider speculative selling above $67.00 (20 times average adjusted EPS)

BALANCE SHEET – Consolidated Edison is a slow equity grower.  It doesn’t have a lot of current assets on hand to pay current liabilities (see current ratio and quick ratio below).  It high priced compared to book value.

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Book value per share: $39.93

Price to book value ratio: 1.46 (under 1.0 is good)

Current ratio: 1.17 (over 2.0 is good)

Quick ratio: 0.79 (over 1.0 is good)

Debt to equity ratio: 0.89 (lower is better)

CONCLUSION – Consolidated Edison is a solid dividend payer and a slight grower.  It isn’t a high dividend stock now at over $58 dollars per share, but it is below $40 per share.  At $40 per share the stock would be yielding 6%.  ED has excellent and stable earning power of $3.35 per share @ 292.2 million shares.  Its earnings are not volatile compared to most other industries.  However, ED is almost speculatively priced at 17.42 times average adjusted EPS.  You can buy Consolidated Edison below $40 per share when the stock market tanks in the near future.  The double-dip recession in Europe and the coming recession in China and the US will push equity priced down to their March 2009 lows.  Edison’s balance sheet is unremarkable.  I’d like to see more current assets and cash to cover next year’s current liabilities.  The price to book value ratio would be attractive if the price fell back below $40.  You should consider buying Consolidated Edison below $40 per share.

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DISCLOSURE – I don’t own Consolidate Edison (ED).

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Published in: on January 30, 2012 at 2:23 pm  Leave a Comment  

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