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Summary

  • The company beat on the top and bottom line.
  • The stock is inexpensively valued based on 2015 earnings estimates.
  • The stock is up 6% in the past three months.

The last time I wrote about Consolidated Edison Inc. (NYSE:ED) I stated:

"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." Since that article was published the stock is down 0.31% while the S&P 500 (NYSEARCA:SPY) is up 0.72%. ConEd is a holding company that owns Consolidated Edison Company of New York and Orange & Rockland Utilities.

The company reported earnings after the market closed on 08May14 and on the surface the results were great with the company reporting earnings of $1.23 per share (beating estimates by $0.18) on revenue of $3.79 billion (beating estimates by $370 million). The stock increased 0.8% in after hours trading and what I'd like to do at this time is delve into the weeds and pick out some highlights from different portions of the report to see if the stock is worth buying at the present time.

Segment Revenue

Segment Revenues (millions)

1Q14

4Q13

1Q13

Q/Q

Y/Y

Electric

$ 2,237

$ 1,957

$ 1,958

14%

14%

Gas

$ 882

$ 488

$ 742

81%

19%

Steam

$ 341

$ 161

$ 332

112%

3%

Non-utility

$ 329

$ 262

$ 152

26%

116%

Total Revenue

$ 3,789

$ 2,868

$ 3,184

32%

19%

This was a pretty phenomenal quarter on the top line with revenues increasing 19% year over year. Electric revenues which account for 59% of revenues increased 14% from last year and from last quarter while gas revenues which account for 23% of revenues increased 19% from last year.

Income Statement

Income statement

1Q14

4Q13

1Q13

Q/Q

Y/Y

Revenue

$ 3,789

$ 2,868

$ 3,184

32%

19%

Purchased power

$ 963

$ 677

$ 707

42%

36%

Fuel

$ 156

$ 60

$ 147

160%

6%

Gas purchased for resale

$ 400

$ 192

$ 250

108%

60%

Other operations and maintenance

$ 825

$ 737

$ 830

12%

-1%

Depreciation and amortization

$ 261

$ 261

$ 251

0%

4%

Taxes other than income taxes

$ 499

$ 464

$ 473

8%

5%

Total Operating Expenses

$ 3,104

$ 2,391

$ 2,658

30%

17%

Operating Income

$ 685

$ 477

$ 526

44%

30%

Investment and other income

$ 12

$ 5

$ 4

140%

200%

Allowance for equity funds used during construction

$ 1

$ 2

$ 1

-50%

0%

Other deductions

$ (3)

$ (2)

$ (3)

50%

0%

Total Other Income

$ 10

$ 5

$ 2

100%

400%

Income before interest and income tax expense

$ 695

$ 482

$ 528

44%

32%

Interest on long term debt

$ 146

$ 145

$ 143

1%

2%

Other interest

$ (9)

$ -

$ 136

N/A

-107%

Allowance for borrowed funds used during construction

$ (1)

$ (1)

$ -

0%

N/A

Net Interest expense

$ 136

$ 144

$ 279

-6%

-51%

Income before income tax expense

$ 559

$ 338

$ 249

65%

124%

Income tax expense

$ 198

$ 104

$ 57

90%

247%

Net Income

$ 361

$ 234

$ 192

54%

88%

Avg. number diluted shares

294.1

294.4

294.2

0%

0%

Earnings per diluted share

$ 1.23

$ 0.79

$ 0.65

54%

88%

After seeing a 19% increase in revenues we'd expect to see something similar to that on the bottom line but we got an 88% increase instead! Let's go through the income statement to figure out why that was the case. Initially we see that purchased power increased 36% and gas purchased for resale increased 60 that led to operating expenses increasing 17% and operating income increasing 30%. After taking into account other income, income before interest and taxes increased by 32% from last year. Interest expenses decreased 51% from last year but tax expenses increased 247% which led to net income increasing 88% and the bottom line increasing by the same amount.

Conclusion

The company reported earnings which were 88% higher than a year ago on 19% more revenue while the share price was up 6.28% since the last earnings call. These were pretty good results to me and make me want to buy some more shares of the company. The company is already the biggest position in my dividend portfolio, but when the company puts together a stellar quarter, it's worthy of some additional positions. The results were good to me but we'll have to see what investors seem to think when the market opens tomorrow. This stock may just be at the mercy of the overall market. That being said, I think the stock is inexpensively valued and should be bought. With these results the stock is on my team and in the starting lineup.

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: Edison Shoots The Lights Out Of First-Quarter Earnings