Stocks Utilities

Consolidated Edison Inc Valuation – March 2019 #ED

Company Profile (excerpt from Reuters): Consolidated Edison, Inc. (Con Edison), incorporated on September 3, 1997, is a holding company. The Company operates through its subsidiaries, which include Consolidated Edison Company of New York, Inc. (CECONY), Orange and Rockland Utilities, Inc. (O&R), Con Edison Clean Energy Businesses, Inc. (the Clean Energy Businesses) and Con Edison Transmission, Inc. (Con Edison Transmission). CECONY’s principal business operations are its regulated electric, gas and steam delivery businesses. O&R’s principal business operations are its regulated electric and gas delivery businesses. The Clean Energy Businesses develop, own and operate renewable and energy infrastructure projects and provide energy-related products and services to wholesale and retail customers. Con Edison Transmission, through its subsidiaries, invests in electric and gas transmission projects.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of ED – March 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $27,410,352,908 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.62 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 22.57% Fail
6. Moderate PEmg Ratio PEmg < 20 19.77 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.60 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.62 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -7.47 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $4.32
MG Growth Estimate 1.99%
MG Value $53.88
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $62.63
MG Value based on 0% Growth $36.71
Market Implied Growth Rate 5.64%
Current Price $85.40
% of Intrinsic Value 158.49%

Consolidated Edison, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $3.81 in 2015 to an estimated $4.32 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 5.64% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Consolidated Edison, Inc. revealed the company was trading above its Graham Number of $69.52. The company pays a dividend of $2.86 per share, for a yield of 3.3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 19.77, which was below the industry average of 23.71, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-105.15.

Consolidated Edison, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$105.15
Graham Number $69.52
PEmg 19.77
Current Ratio 0.62
PB Ratio 1.60
Current Dividend $2.86
Dividend Yield 3.35%
Number of Consecutive Years of Dividend Growth 20

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $3,864,000,000
Total Current Liabilities $6,207,000,000
Long-Term Debt $17,495,000,000
Total Assets $53,920,000,000
Intangible Assets $2,094,000,000
Total Liabilities $37,081,000,000
Shares Outstanding (Diluted Average) 315,900,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.00
Dec2018 $4.42
Dec2017 $4.94
Dec2016 $4.12
Dec2015 $4.05
Dec2014 $3.71
Dec2013 $3.61
Dec2012 $3.86
Dec2011 $3.57
Dec2010 $3.47
Dec2009 $3.14
Dec2008 $4.37
Dec2007 $3.47
Dec2006 $2.95
Dec2005 $2.94
Dec2004 $2.27
Dec2003 $2.38
Dec2002 $3.02
Dec2001 $3.21
Dec2000 $2.74
Dec1999 $3.13

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.32
Dec2018 $4.40
Dec2017 $4.29
Dec2016 $3.93
Dec2015 $3.81
Dec2014 $3.68
Dec2013 $3.62
Dec2012 $3.64
Dec2011 $3.56
Dec2010 $3.53
Dec2009 $3.50
Dec2008 $3.52
Dec2007 $2.99
Dec2006 $2.74
Dec2005 $2.68
Dec2004 $2.61
Dec2003 $2.81

Recommended Reading:

Other ModernGraham posts about the company

Consolidated Edison Inc Valuation – June 2018 $ED
Consolidated Edison Inc Valuation – February 2017 $ED
Consolidated Edison Inc Valuation – August 2016 $ED
Consolidated Edison Analysis – 2015 Update $ED
21 Companies in the Spotlight This Week – June 14, 2014

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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