The analysts might have been a bit too bullish on Consolidated Edison, Inc. (NYSE:ED), given that the company fell short of expectations when it released its first-quarter results last week. Earnings fell badly short of analyst estimates, with US$3.2b revenues missing by 10%, and statutory earnings per share (EPS) of US$1.12 falling short of forecasts by some -19%. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. So we collected the latest post-earnings statutory consensus estimates to see what could be in store for next year.
Taking into account the latest results, the current consensus from Consolidated Edison's twelve analysts is for revenues of US$12.9b in 2020, which would reflect a reasonable 4.8% increase on its sales over the past 12 months. Statutory earnings per share are predicted to bounce 42% to US$5.54. Yet prior to the latest earnings, the analysts had been anticipated revenues of US$13.4b and earnings per share (EPS) of US$4.52 in 2020. Although the analysts have lowered their sales forecasts, they've also made a great increase in their earnings per share estimates, which implies there's been something of an uptick in sentiment following the latest results.
There's been no real change to the average price target of US$84.11, with the lower revenue and higher earnings forecasts not expected to meaningfully impact the company's valuation over a longer timeframe. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. Currently, the most bullish analyst values Consolidated Edison at US$99.00 per share, while the most bearish prices it at US$71.00. These price targets show that analysts do have some differing views on the business, but the estimates do not vary enough to suggest to us that some are betting on wild success or utter failure.
Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. For example, we noticed that Consolidated Edison's rate of growth is expected to accelerate meaningfully, with revenues forecast to grow 4.8%, well above its historical decline of 0.03% a year over the past five years. Compare this against analyst estimates for the wider industry, which suggest that (in aggregate) industry revenues are expected to grow 2.2% next year. Not only are Consolidated Edison's revenues expected to improve, it seems that the analysts are also expecting it to grow faster than the wider industry.
The Bottom Line
The biggest takeaway for us is the consensus earnings per share upgrade, which suggests a clear improvement in sentiment around Consolidated Edison's earnings potential next year. They also downgraded their revenue estimates, although industry data suggests that Consolidated Edison's revenues are expected to grow faster than the wider industry. Even so, long term profitability is more important for the value creation process. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.
Following on from that line of thought, we think that the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple Consolidated Edison analysts - going out to 2024, and you can see them free on our platform here.
Plus, you should also learn about the 3 warning signs we've spotted with Consolidated Edison (including 1 which is a bit concerning) .
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.