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Summary

  • The forward earnings P/E ratio has now gone higher than the P/E ratio of the last year.
  • The company sports a dividend yield of 4.54%.
  • The stock price has been flat-lined for quite some time.

The last time I wrote about Consolidated Edison Inc. (NYSE:ED), I stated, "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." The stock has popped 0.62% versus the 3.41% gain the S&P 500 (NYSEARCA:SPY) posted during that time frame. It's safe to say that I've lost out on that transaction. 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 3.98% excluding dividends (up 0.44% including dividends), and is losing the S&P 500, which has gained 19.37% in the same time frame. Since initiating my position back on 21st May, '13, I'm down 1.8%, including reinvested dividends and dollar cost averaging. 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 right now is a good time to purchase more of the stock for my dividend portfolio.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 13.25, which is inexpensively 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 14.35 is currently inexpensively priced for the future in terms of the right here, right now. The forward P/E value that is higher than the trailing twelve-month P/E value tells us the story of earnings contraction in the next year. Next year's estimated earnings are $3.87 per share, while the trailing twelve-month earnings per share were $4.19. 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 (4.25), 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 3.12%. 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

17Jun14

55.52

13.25

14.35

3.87

58

4.25

3.12

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 4.54% with a payout ratio of 60% of trailing 12-month earnings, while sporting return on assets, equity and investment values of 3%, 10.1% 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 4.54% 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

17Jun14

4.54

60

3.0

10.1

7.2

Technicals

(click to enlarge)

Looking first at the relative strength index chart [RSI] at the top, I see the stock in middle-ground territory, with a current value of 54.99. 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 flattening in height, indicating bullish momentum is getting tired. As for the stock price itself ($55.52), I'm looking at $57.28 to act as resistance and the 20-day simple moving average (currently $54.85) to act as support, for a risk/reward ratio which plays out to be -1.21% to 3.17%.

What Has Changed?

From the tables above, we see that the trailing twelve-month earnings per share have declined quite a bit with respect to 2015 earnings. What this means is that at the price you can purchase ConEd for today, it is that much more expensive than you were paying for it at any point in time during the past year. Personally, that is a trend I don't like to experience, and when that situation arises, I usually sell the stock at my quarterly rotation. However, the conundrum is that the 2015 earnings estimates still present an inexpensive valuation for the stock.

Conclusion

The higher future valuation troubles me at this point in time, and I'll begin to consider selling the name when August arrives. That being said, fundamentally, the company is inexpensively valued based on next year's earnings estimate, but expensive on future growth potential, while next year's earnings estimates have increased by a penny. Financially, the company sports a high dividend yield which is well-supported, and the financial efficiency ratios have increased. On a technical basis, I calculate a pretty good reward/risk ratio, but I feel it will test the risk before the reward. I haven't bought any shares in the company in about a month, and since I don't like buying shares of a company which are more expensive on the out-year when compared to the trailing twelve months, I'm not going to make a purchase 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: Is It Time To Sell High-Yielding ConEd?