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Summary

  • The stock is inexpensively valued based on 2015 earnings estimates.
  • Investors received a 20 basis point increase to the dividend if they bought the stock after the earnings selloff.
  • The stock looks to be exhibiting bullish momentum now.

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." After the writing the article the stock dropped 4.18% versus the 0.83% 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 May 8, 2014, the company reported first quarter earnings of $1.23 per share, which beat the consensus of analysts' estimates by $0.18. In the past year the company's stock is down 9.23% excluding dividends (down 4.82% including dividends) and is losing to the S&P 500, which has gained 12.61% 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 portfolio.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 15.29, 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 14.29 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 (4.54), 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 3.37%. 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

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

17May14

55.18

15.29

14.29

3.86

58

4.54

3.37

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 4.57% 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 4.57% 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 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

17May14

4.57

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 muddling in middle-ground territory with a current value of 45.88 but flattening out. 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 starting to increase in height, indicating bullish momentum is starting to form. As for the stock price itself ($55.18), I'm looking at $55.86 to act as resistance and the 50-day simple moving average (currently $54.82) to act as support for a risk/reward ratio which plays out to be -0.65% to 1.23%.

Recent News

  1. The company reported first quarter earnings which beat on the top and bottom lines. Earnings per share came in at $1.23 on revenue of $3.79 billion versus expectations of $1.05 per share and $3.42 billion.
  2. The company stated broad revenue growth was the purpose of earnings increasing compared to last year. Revenue from the electric business (the company's largest segment) grew 14% when compared to last year while the gas segment gained 19%. The company kept guidance the same for the year at $3.65-$3.85 but was unable to provide any insight to the damage estimates related to lawsuits filed for the Harlem explosion back in March which killed eight people. It was because of this lack of clarity the stock dropped after the conference call.
  3. The company declared a quarterly dividend of $0.63 per share. The dividend had an ex-date of 12May14 with a pay date of 15Jun14 for a forward yield of 4.47%.

Conclusion

The earnings announcement was great, however, the lack of clarity on the financial damages related to the lawsuits due to the gas explosion back in March didn't provide any warm-fuzzies to investors as the stock was sold off 2.11%. Fundamentally, this company is inexpensively valued on next year's earnings estimates but expensive on earnings growth potential. Financially, this is a high yielding dividend company that is well supported by earnings. Technically, the stock has leveled off after the earnings sell off and is experiencing bullish technicals. Due to the bullish technicals, high dividend yield, and inexpensive valuation based on next year's earnings estimates, I will be adding a small position right here.

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 Edison May Be Ready To Bounce After Earning Sell-Off