Consolidated Edison, Inc.’s ED regulated utilities help to generate earnings regularly. These utilities offer transmission and distribution with limited commodity exposure as most electric and gas supply costs are passed on to customers.
Moreover, the company is investing strategically for developing infrastructure. To this end, the company plans to invest approximately $11.1 billion in the 2017-2019 time frame. Roughly 84% of the investment has been allocated for regulated utility operations.
Consolidated Edison is also spending prudently to enhance renewable generation assets. The company is gradually converting some of its operations to gas, which is environmental friendly. As of Sep 30, 2017, Consolidated Edison had renewable generating capacity of 1,291 megawatts (MW), up from 2016-end level of 1,098 MW.
Coming to its earnings performance, Consolidated Edison delivered a positive earnings surprise in two of the last four quarters, with an average beat of 0.06%. Notably, the company’s Zacks Consensus Estimate for 2018 earnings is $4.26, reflecting an annual improvement of 4.3%.
Further, the company maintains a stable liquidity level backed by a strong cash generation capacity, which in turn enables it to follow a disciplined capital spending program. Buoyed by the solid cash balance position, the company's shares have outperformed the broader industry over a year. Evidently, Consolidated Edison’s share price has rallied 9.9% compared with its industry’s gain of 3.8%.
On the flip side, Consolidate Edison faces interest rate risk owing to variable rate debt and new debt financing which is needed to fund capital requirements, including the construction expenditures of the Utilities and maturing debt securities. Management estimates that as of Sep 30, 2017, the company witnessed a 10% increase in interest rates due to variable rate debt which might result in an increase in annual interest expense of $2 million.
Moreover, Consolidated Edison is overvalued compared to its broader industry in terms of EV/EBITDA multiple. Evidently, the EV/EBITDA multiple for the company stands at 10.52, while that for the broader industry is 10.43. The company also faces commodity price risk related to the purchase and sale of its electricity, gas and related derivative instruments.
Zacks Rank & Key Picks
Consolidated Edison carriesa Zacks Rank #3 (Hold).
A few better-ranked stocks in the same space are DTE Energy Company DTE, Atlantic Power Corporation AT and WEC Energy Group, Inc. WEC, each of which carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
DTE Energy posted positive average earnings surprise of 3.81% in the trailing four quarters. The company boasts a long-term earnings growth rate of 6%.
Atlantic Power delivered positive average earnings surprise of 29.21% in the last four quarters. Additionally, the 2017 Zacks Consensus Estimate for loss has narrowed down by a nickel in the last 60 days.
WEC Energy Group delivered positive average earnings surprise of 3.08% in the last four quarters. The company has a long-term earnings growth rate of 5.4%.
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