The last time I wrote about Consolidated Edison Inc. (NYSE:ED) I bought a small batch in it stating "…that it can trade upwards for a bit…" Since the last article it actually shot up 2.33% excluding the dividend (it is up 3.39% including the dividend) versus the 3.75% gain the S&P500 (NYSEARCA:SPY) posted. Consolidated Edison Inc. is a holding company that owns Consolidated Edison Company of New York, and Orange & Rockland Utilities. On November 4, 2013, the company reported third quarter earnings of $1.48 per share, which beat the consensus of analysts' estimates by $0.06. In the past year the company's stock is up 4.18% excluding dividends (up 8.37% including dividends), and is losing to the S&P 500, which has gained 30.32% in the same time frame. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial, and technical basis to see if it's worth buying more shares of the company right now for the utilities sector of my dividend growth portfolio.
The company currently trades at a trailing 12-month P/E ratio of 16.5, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 15.21 is currently fairly priced for the future in terms of the right here, right now. The 1-year PEG ratio (9.12), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is expensively priced based on a 1-year EPS growth rate of 1.81%. Below is a comparison table of the fundamentals metrics for the company from the time I wrote the last article to what it is right now.
EPS Next YR ($)
Target Price ($)
EPS next YR (%)
On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 4.24% with a payout ratio of 70% of trailing 12-month earnings while sporting return on assets, equity and investment values of 2.5%, 8.7% and 7.5%, respectively, which are all respectable values but nothing to go writing home about. Because I believe the market may get a bit choppy here and would like a safety play, I believe the 4.24% yield of this company is good enough for me to take shelter in for the time being. The company has been increasing its dividends for the past 39 years at a 5-year dividend growth rate of 0.8%. Below is a comparison table of the financial metrics for the company from the time of the last article to what it is right now.
Payout TTM (%)
Looking first at the relative strength index chart [RSI] at the top, I see the stock muddling around in middle-ground territory with a value of 61.21 with upward trajectory indicating a bullish pattern. To confirm that, I will look at the moving average convergence-divergence [MACD] chart next and see that the black line is about to cross above the red line with the divergence bars increasing in height, also indicating a bullish pattern. As for the stock price itself ($58.07), I'm looking at $59.57 to act as resistance and $56.66 to act as support for a risk/reward ratio, which plays out to be -2.43% to 2.58%.
- The company announced third quarter earnings of $1.48 per share on revenue of $3.48 billion versus expectations of $1.42 per share on revenue of $3.46 billion. Revenue from the electric business (Edison's largest top-line contributor) rose 0.4%.
- UBS (NYSE:UBS) upgraded the stock to "Neutral" from "Sell".
- The company declared a quarterly dividend of $0.615 per share with an ex-date of 08Nov13 and pay date of 15Dec13.
During the middle of the week there were interest rate concerns and all the utilities fell on those particular concerns. Utilities, telecoms, and real estate investment trusts will all be hard hit if interest rates begin to increase. Thankfully interest rates shouldn't be creeping up anytime soon as we all heard from Janet Yellen during the week that she'll do everything to keep the economy propped up. But always be aware of the inverse relationship. Fundamentally the stock fairly valued on future earnings but expensive on future growth prospects. Financially, there was a slight uptick in return on equity which is something I always like to see. Technically I see a bit of upside, it can possibly get to that $59.57 level but I do not see it going up much further than that. The company was able to increase the ROE, has slightly bullish technicals, and pays a high yield and for these reasons I'm going to layer into my position and buy a small batch in the stock again for now and see what happens.
Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!
Disclosure: I am long ED, SPY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.