Stable regulated utility operations, gains from the sale of generation projects, a reasonably strong balance sheet, strong cash flow, regulated rate increases and earnings from non-regulated businesses collectively make Consolidated Edison Inc., a.k.a., ConEd (ED) a conservative income-based investment story.
ED offers an above-industry average dividend yield, competitive with Treasury yields. However, the issues of future electricity sales growth, rising cost structure and increasing capital expenditure continue to restrain valuation. Accordingly, with a mixed outlook, we maintain our market-neutral Hold recommendation on ED common stock with a six-month target price of $42.50.
Price appreciation to our near-term valuation target, coupled with the recently increased $0.585 per share quarterly dividend which appears sustainable assuming modest projected EPS growth represents annualized total return potential of 10.7%.
In May 2008, Consolidated Edison Company of New York filed a request with the New York State Public Service Commission (PSC) for a three-year electric rate plan with rate increases of $556.7 million annually, effective April 2009, 2010 and 2011. This filing reflects a 10.0% return on common equity and a common equity ratio of 48.0%.
Also, in June 2008, Con Edison of New York requested PSC approval for steam rate increases of $43.7 million effective October 1, 2008 and 2009. The proposal has an annual return on common equity 9.3%. Financially, in January 2008, the company increased its quarterly dividend by $0.005 per share, which equates to an indicated annual rate of $2.34 per share.
Read the full analyst report on ED
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