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Summary

  • The stock is in overbought territory.
  • The stock is near fair valuation.
  • Edison has been a hideout spot for investors as treasury yields have been retreating in the past month.

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, bearish technicals, and the recent explosion, I'm not going to be buying a position at this price." I was mainly concerned about any repercussions from the explosion that happened in New York, but since the last article, it popped 5.61% versus the -0.68% drop 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 6.33% excluding dividends (down 2.04% including dividends), and is losing to the S&P 500, which has gained 19.8% in the same timeframe. 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 portfolio.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 15.95, 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 14.91 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $3.86 per share, and I'd consider the stock inexpensive until about $58. The 1-year PEG ratio (4.85), 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 3.29%. 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

15 Nov13

58.07

16.50

15.21

3.82

57

9.12

1.81

15 Dec13

54.33

15.43

14.27

3.81

57

10.15

1.52

14 Jan14

53.78

15.28

14.27

3.77

57

41.3

0.37

18 Feb14

55.27

15.70

14.77

3.74

56

N/A

-0.53

18 Mar14

54.42

15.07

14.07

3.87

58

4.23

3.56

17 Apr14

57.59

15.95

14.91

3.86

58

4.85

3.29

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 4.38% 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 4.38% 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

15 Nov13

4.24

70

2.5

8.7

7.5

15 Dec13

4.53

70

2.5

8.7

7.5

14 Jan14

4.57

70

2.5

8.7

7.5

18 Feb14

4.56

72

2.5

8.7

7.5

18 Mar14

4.63

70

2.6

8.8

7.2

17 Apr14

4.38

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 hitting overbought territory as of today with a current value of 72.73. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is above the red line with the divergence bars increasing in height, indicating some bullish momentum. As for the stock price itself ($57.59), I'm looking at $57.73 to act as resistance and $55.69 to act as support for a risk/reward ratio, which plays out to be -3.3% to 0.24%.

Recent News

  1. In the wake of the gas explosion last month the company did some homework on what it would take to replace aging gas pipelines in New York. The work is estimated to take forty years and cost about $10 billion. The company is working on this, but it has about 1,110 miles of cast-iron pipeline to fix with an additional 1,084 miles of unprotected steel gas pipes to replace. In the period of time ranging from 2010 to 2013, the company replaced only 83 miles of pipe, so the scope of this project is beyond enormous.

Conclusion

Due to the geopolitical issues going on around the world causing treasury yields to decrease, investors are heading towards utility stocks such as ConEd. Fundamentally, the company is inexpensively priced based on future earnings, but expensively priced on future growth potential. Financially, the dividend is secured by earnings but has no growth. On a technical basis, I believe the stock has hit a short-term top right here as it has moved too high too fast. Due to the overbought technicals, slow dividend growth, and expensive valuation based on earnings growth potential, I'm not going to be pulling the trigger on a batch of this particular name right now.

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: High Yielding Consolidated Edison Might Shock You If You Buy Shares Now