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Summary

  • ConEd sports a yield of 4.63%.
  • The company has low earnings growth projections.
  • Due to geopolitical issues taking place, investors are flocking to utilities because they have nothing to do with those issues.

The last time I wrote about Consolidated Edison Inc. (NYSE:ED), I stated, "Due to the expensive valuation on next year's earnings growth potential, tiring technicals, and severe run-up in the stock from the beginning of the year I'm not going to be buying a position at this price." Since writing the article, it dropped 1.36% versus the 1.83% gain the S&P 500 (NYSEARCA:SPY) posted. ConEd is a holding company that owns Consolidated Edison Company of New York and Orange & Rockland Utilities.

On February 20, 2014, the company reported fourth quarter earnings of $0.69 per share, which was in line with analyst estimates. In the past year, the company's stock is down 8.04% excluding dividends (down 3.75% including dividends), and is losing to the S&P 500, which has gained 19.96% 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 utility sector of my dividend portfolio.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 15.07, 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 14.07 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $3.87 per share and I'd consider the stock inexpensive until about $58. The 1-year PEG ratio (4.23), 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 3.56%. Below is a comparison table of the fundamentals 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

16.50

15.21

3.82

57

9.12

1.81

15Dec13

54.33

15.43

14.27

3.81

57

10.15

1.52

14Jan14

53.78

15.28

14.27

3.77

57

41.3

0.37

18Feb14

55.27

15.70

14.77

3.74

56

N/A

-0.53

18Mar14

54.42

15.07

14.07

3.87

58

4.23

3.56

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 4.63% with a payout ratio of 70% of trailing 12-month earnings while sporting return on assets, equity and investment values of 2.6%, 8.8% and 7.2%, 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 4.63% 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 40 years at a 5-year dividend growth rate of 1%. 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

68

2.6

8.9

7.5

14 Sep13

4.48

68

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

14Jan14

4.57

70

2.5

8.7

7.5

18Feb14

4.56

72

2.5

8.7

7.5

18Mar14

4.63

70

2.6

8.8

7.2

Technicals

(click to enlarge)

Looking first at the relative strength index chart [RSI] at the top, I see the stock near middle-ground territory with a current value of 46.55. 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 decreasing in height, indicating bearish momentum. As for the stock price itself ($54.41), I'm looking at the 200-day simple moving average (currently at $55.28) to act as resistance and the 50-day simple moving average (currently $54.15) to act as support for a risk/reward ratio, which plays out to be -0.48% to 1.6%.

Recent News

  1. The company is going to be investigated for its role in the explosion last week. The gas explosion which occurred in Harlem killed eight people.
  2. Prior to the explosion the company received complaints of a gas leak. Fifteen minutes prior to the explosion, the company sent a crew in response to an individual reporting the smell of gas.
  3. The company was upgraded from "Hold" to "Buy" at Argus. Argus says the company is favorably valued based on historical multiples and placed a price target of $60.

Conclusion

Due to the geopolitical issues going on around the world, investors are heading towards utility stocks such as ConEd. Fundamentally, the company is inexpensively priced based on 2015 earnings and expensive on future growth potential. Financially the dividend is high and secure. On a technical basis, I believe there is a bit more bullish momentum coming. Due to the expensive valuation on next year's earnings growth potential, bearish technicals, and the recent explosion, I'm not going to be buying a position at this price.

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: Is It Time To Purchase High Yielding Consolidated Edison?