We have maintained our Neutral recommendation on Consolidated Edison Inc. (ED) on May 13, 2013 based on its year-over-year improvement in first quarter 2013 earnings, planned investments and revenue decoupling mechanisms. However, these positives are partially offset by macro economic and regulatory risks. The company currently has a Zacks Rank #3 (Hold).
Why the Reiteration?
Consolidated Edison has a stable earnings base from its two regulated utilities. The company posted first quarter 2013 earnings of $1.08 per share. The quarterly result surged 6.9% from the year-ago profit of $1.01. The year-over-year improvement largely reflects changes in the rate plans of the company’s utility subsidiaries. Again, the effects of normal winter weather as against the milder winter in the year-earlier quarter also contributed to earnings growth.
The company’s Smart Grid technologies and energy efficiency programs help in enhancing system performance and provide energy savings for businesses and residential customers. The company plans to make capital investments of $2.4 billion in 2013. Additionally, the company is progressing on the regulatory front with its rate case proceedings.
Consolidated Edison focuses on maximizing shareholder value via dividend payouts. In Jan 2013, the company increased its quarterly dividend by 1 cent per share, culminating in an annual rate of $2.46 per share and a dividend yield of approximately 4.07%. This marked the company’s 39th consecutive annual dividend increase.
Moreover, the company’s revenue decoupling mechanisms in its electric and gas rate plans, along with the weather-normalization clause applicable to its gas business, make its revenues immune to any volatility in demand.
The positives make for a strong case for ConEdison. We however prefer to remain on the sidelines given the lurking concerns for lower demand for electricity, earnings dilutive issuances and regulatory risks.
Stocks to Consider
Stocks worth considering in the energy space are CPFL Energia S.A. (CPL), ALLETE, Inc. (ALE), Empresa Nacional de Electricidad S.A. (EOC). While CPFL Energia and Empresa Nacional de Electricidad carry a Zacks Rank #1 (Strong Buy), ALLETE, Inc. holds a Zacks Rank #2 (Buy).
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