Seeking Alpha
Long only, value, growth, dividend investing
Profile| Send Message|
( followers)  

The last time I wrote about Consolidated Edison Inc. (NYSE:ED) I stated that I was going to buy a small batch in the stock because I was still concerned about interest rates dropping the price of the stock. Since the last article it dropped 6.44% versus the 1.27% loss the S&P 500 (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 down 3.19% excluding dividends (up 1% including dividends), and is losing to the S&P 500, which has gained 25.58% 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.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 15.43, 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 14.27 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $3.81 per share and I'd consider the stock inexpensive until about $57. The 1-year PEG ratio (10.15), 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 1.52%. Below is a comparison table of the fundamental metrics for the company for when I wrote all articles pertaining to the company.

Article Date

Price ($)

TTM P/E

Fwd P/E

EPS Next YR ($)

Target Price ($)

PEG

EPS next YR (%)

14 Aug13

58.71

16.45

15.32

3.83

57

7.51

2.19

14 Sep13

54.88

15.37

14.32

3.83

57

7.02

2.19

17 Oct13

56.75

16.55

14.87

3.82

57

7.92

2.09

15Nov13

58.07

16.5

15.21

3.82

57

9.12

1.81

15Dec13

54.33

15.43

14.27

3.81

57

10.15

1.52

Financials

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 4.53% 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. Because I believe the market may get a bit choppy here and would like a safety play, I believe the 4.53% 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 for when I wrote all articles pertaining to the company.

Article Date

Yield (%)

Payout TTM (%)

ROA (%)

ROE (%)

ROI (%)

14 Aug13

4.19

67.5

2.6

8.9

7.5

14 Sep13

4.48

67.5

2.6

8.9

7.5

17 Oct13

4.33

72

2.5

8.5

7.5

15Nov13

4.24

70

2.5

8.7

7.5

15Dec13

4.53

70

2.5

8.7

7.5

Technicals

(click to enlarge)

Looking first at the relative strength index chart ((RSI])) at the top, I see the stock near oversold territory with a value of 34.41. I will look at the moving average convergence-divergence (MACD) chart next. I see that the black line is below the red line with the divergence bars flattening out in height, indicating the bearish pattern is losing momentum. As for the stock price itself ($54.33), I'm looking at the 20-day simple moving average (currently at $55.75) to act as resistance and $53.95 to act as support for a risk/reward ratio which plays out to be -0.7% to 2.61%.

Recent News

  1. The company was downgraded by Argus from "buy" to "hold" in late November. The downgrade came at the expense of the valuation of the stock and an unfavorable rate case decision which will unlikely allow the company to increase the return on equity to 10.1%.

Conclusion

During the middle of the week the Federal Open Market Committee will be meeting and don't be surprised if they state that the bond buying program will come to a halt soon. When this happens you will see utilities, telecoms and real estate investment trusts hard hit if interest rates begin to increase on the news. I would wait until the announcement is made before stepping into the stock. Fundamentally the stock is inexpensively valued on future earnings but expensive on future growth prospects. Financially the dividend is higher but at the expense of a lower share price and I'd expect the company to increase the dividend in the low single digits come February. Technically I see the stock bottoming out but the stock price can go lower depending on what the FOMC says during the week. The company has become inexpensively valued based on earnings, 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 after the FOMC meeting.

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!

Source: Fed Meeting Might Make Consolidated Edison's Yield Even Higher