Company Description: Consolidated Edison, Inc. is an electric and gas utility holding company that serves parts of New York, New Jersey and Pennsylvania.
Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of Fair Value, see page 2 of the linked PDF for a detailed description:
Avg. High Yield Price
20-Year DCF Price
Avg. P/E Price
Consolidated Edison is trading at a premium to all four valuations above. The stock is trading at a 13.7% premium to its calculated Fair Value of $51.75. ED did not earn any Stars in this section.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
Free Cash Flow Payout
Debt To Total Capital
Dividend Growth Rate
Years of Div. Growth
Rolling 4-yr Div. > 15%
Consolidated Edison earned one Star in this section for 3.) above. Consolidated Edison earned a Star for having an acceptable score in at least two of the four key metrics measured. The company has paid a cash dividend to shareholders every year since 1885 and has increased its dividend payments for 39 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
NPV MMA Diff.
Years to > MMA
The NPV MMA Diff. of the $372 is below the $500 target I look for in a stock that has increased dividends as long as Consolidated Edison has. The stock's current yield of 4.11% exceeds the 3.1% estimated 20-year average MMA rate.
Memberships and Peers: Consolidated Edison is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers Index and a Dividend Champion. The company's peer group includes: The American Electric Power Company (NYSE:AEP) with a 5.0% yield, PG&E Corp (NYSE:PCG) with a 4.4% yield and Xcel Energy (NYSE:XEL) with a 3.9% yield.
Conclusion: Consolidated Edison did not earn any Stars in the Fair Value section, earned one Star in the Dividend Analytical Data section and did not earn any Stars in the Dividend Income vs. MMA section for a total of one Star. This quantitatively ranks ED as a 1-Star Very Weak stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to decrease to $54.01 before Consolidated Edison's NPV MMA Differential increased to the $500 minimum that I look for in a stock with 39 years of consecutive dividend increases. At that price the stock would yield 4.5%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 1.8%. This dividend growth rate is above the 0.8% used in this analysis, thus providing no margin of safety. Consolidated Edison has a risk rating of 1.50 which classifies it as a Low risk stock.
As a regulated electric and gas utility, Consolidated Edison produces strong and steady cash flows. It has a good balance sheet, and enjoys strong credit rating. In 2011, investors fled to the safety of utilities, resulting in an increase of over 25% in Consolidated Edison's shares. Some of this gain was lost in early 2012 as some investors rotated out of the sector. Even with the decline, Consolidated Edison is still trading at a premium to my $51.75 calculated fair value price.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion.
Full Disclosure: At the time of this writing, I was long in ED (1.6% of my Dividend Growth Portfolio). See a list of all my dividend growth holdings here