Linked here is a detailed quantitative analysis of Consolidated Edison, Inc. (ED). Below are some highlights from the above linked analysis:
Company Description: Consolidated Edison, Inc. is an electric and gas utility holding company 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):
1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number
ED is trading at a premium to all four valuations above. The stock is trading at a 11.3% premium to its calculated fair value of $50.19. 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):
1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%
ED earned one Star in this section for 3.) above. ED 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 40 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:
1. NPV MMA Diff.
2. Years to > MMA
The NPV MMA Diff. of the $387 is below the $500 target I look for in a stock that has increased dividends as long as ED has. The stock's current yield of 4.4% exceeds the 3.41% estimated 20-year average MMA rate.
Memberships and Peers: ED is a member of the S&P 500, a Dividend Aristocrat, a member of the Broad Dividend Achievers™ Index and a Dividend Champion. The company's peer group includes: The American Electric Power Company (AEP) with a 4.2% yield, PG&E Corp (PCG) with a 4.5% yield and Xcel Energy (XEL) with a 4.0% yield.
Conclusion: ED 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 $52.11 before ED's NPV MMA Differential increased to the $500 minimum that I look for in a stock with 40 years of consecutive dividend increases. At that price the stock would yield 4.7%.
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 1.7%. This dividend growth rate is above the 0.9% used in this analysis, thus providing no margin of safety. ED has a risk rating of 1.5 which classifies it as a Low risk stock.
As a regulated electric and gas utility, ED produces a strong and steady cash flows. New York's need for significant infrastructure should provide growth opportunities for ED, thus supporting long-term earnings and dividend growth. At A-, the company enjoys a strong credit rating.
In 2011 investors fled to the safety of utilities, resulting in an increase of over 25% in ED's shares. The stock decline 10.5% in 2012, which created a small buying opportunity. The stock has declined more than 10% from its 2013 high and was up less than 2% in the first 45 weeks of the year. The weakness is attributed to concern over rising interest rates. The stock is trading slightly above my calculated fair value price of $50.19. However, it is ED's large negative free cash flow will keep me from adding to my position in the near-term.
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. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I was long in ED (1.4% of my Dividend Growth Portfolio). See a list of all my dividend growth holdings here.
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