Consolidated Edison, Inc.

Date: April 22, 2024.

Company’s Overview

Consolidated Edison (ED), also known as Con Edison, is a giant in the energy sector, keeping the lights on for over 10 million people in New York City and Westchester County. They provide essential services, delivering electricity, gas, and even steam in some parts, ensuring homes and businesses have the power they need to thrive.

Competition

Revenue Segments

The Company’s net sales proportions by segment for the most recent quarterly report are composed by:

Related Risks

Shifts in government regulations or extreme weather events can disrupt their business and cause costly repairs. Cybersecurity threats are a constant concern, as attacks on their systems could lead to widespread blackouts. Maintaining their aging infrastructure requires significant investment, and the growing popularity of renewable energy sources could challenge their traditional fossil fuel-based model.

Financial Analysis

Company’s Revenues

Revenues from 2021 to 2023:

• Consolidated Edison Inc annual revenue for 2023 was $14.663B, a 6.43% decline from 2022.
• Consolidated Edison Inc annual revenue for 2022 was $15.67B, a 14.58% increase from 2021.
• Consolidated Edison Inc annual revenue for 2021 was $13.676B, a 11.68% increase from 2020.

The yearly revenue from 2010 till 2023 is:

**The 2024 and 2025 values are the expected by the analysts

Company’s Net Income

Net Income from 2021 to 2023:

• Consolidated Edison Inc annual net income for 2023 was $2.519B, a 51.75% increase from 2022.
• Consolidated Edison Inc annual net income for 2022 was $1.66B, a 23.33% increase from 2021.
• Consolidated Edison Inc annual net income for 2021 was $1.346B, a 22.25% increase from 2020.

The yearly net income from 2010 till 2023 is:

**The 2024 and 2025 values are the expected by the analysts

Company’s EPS

EPS from 2021 to 2023:

• Consolidated Edison Inc 2023 annual EPS was $7.21, a 54.72% increase from 2022.
• Consolidated Edison Inc 2022 annual EPS was $4.66, a 21.04% increase from 2021.
• Consolidated Edison Inc 2021 annual EPS was $3.85, a 17.38% increase from 2020.

Company’s Free Cash Flow

Free Cash Flow from 2021 to 2023:

• Consolidated Edison Inc annual free cash flow for 2023 was $1.202B, a 310.88% increase from 2022.
• Consolidated Edison Inc annual free cash flow for 2022 was $-0.57B, a 37.64% decline from 2021.
• Consolidated Edison Inc annual free cash flow for 2021 was $-0.914B, a 54.77% decline from 2020.

The yearly free cash flow from 2010 till 2023 is:

**The 2024 and 2025 values are the expected by the analysts

Shares Outstanding

In 2023, Con Edison entered into accelerated share repurchase agreements with two dealers to repurchase $1,000 million in aggregate of Con Edison’s Common Shares.

Con Edison made payments of $1,000 million in aggregate to the dealers and received deliveries of 10,543,263 Common Shares in aggregate.

However, the Company increased its shares outstanding by almost 19% during the last years.

Asset/Liabilities & Current Ratio

Delving into Con Edison’s financial health reveals a somewhat mixed picture. The asset-to-liability ratio of 1.47 indicates their assets (resources) are slightly higher than their debts (liabilities). This offers a small buffer for unexpected costs or investments in infrastructure upgrades, crucial for maintaining reliable energy delivery.

The current ratio of 1.01 paints an even tighter picture. This metric measures a company’s ability to meet short-term obligations (debts due within a year) using short-term assets (cash, receivables). A ratio of 1, like Con Edison’s, suggests they have minimal wiggle room to cover their immediate financial commitments without relying on additional funding or asset sales. This lack of readily available resources could limit their ability to react swiftly to short-term challenges or capitalise on time-sensitive opportunities.

Valuation

Based on the analysis performed, ED’s price is slightly overvalued, showing an intrinsic value of $73. As key metrics, we considered 10% Required Rate of Return (RRR) and 20% margin of safety. Note that in the analysis we take into consideration also the cash and cash equivalents and the total debt.

The company has received a range of ratings from buy to sell. Specifically, there were 2 buy, 0 overweight, 12 hold, 1 underweight and 4 sell ratings. The consensus rating leans toward hold.

Consolidated Edison presents a neutral investment proposition. While it offers some advantages, its drawbacks require careful consideration.

On the negative side, their performance is a concern. Negative free cash flow in recent years, driven by increased capital expenditures, debt repayments, and acquisitions, indicates limited cash available for reinvestment. Their revenue growth has also been modest, with a 10-year CAGR of only 1.7%. Financially, their balance sheet is mediocre with a low asset-to-liability ratio and tight current ratio, limiting their ability to weather unexpected challenges. Additionally, their stock appears slightly overvalued, and their net debt is substantial. However, this high debt level is somewhat common in the utilities industry, where debt financing is used to fund expansion projects. Interest rate hikes can also impact their business, as we saw when rates reached 5.5% in the past.

On the bright side, Con Edison boasts a strong track record of delivering earnings to shareholders, with a 10-year EPS CAGR of 7.17%. Their profitability is impressive, with a gross margin and net profit margin that significantly outperform the industry average. This suggests they manage their costs effectively and generate healthy returns on their investments.

Overall, Con Edison is a mixed bag. Investors seeking high growth might look elsewhere, but those prioritising consistent dividends and a reliable business model in a critical sector like utilities might find Con Edison an interesting option, as long as they are comfortable with the company’s financial leverage.

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Disclaimer

Please note that I am not a licensed financial advisor and the information provided here should not be construed as financial advice. I am simply sharing my understanding of the topics based on my research and personal experiences. It is always advisable to consult with a qualified financial advisor before making any investment decisions.

The information I provide is based on publicly available sources and my own interpretations. I strive to provide accurate and up-to-date information, but I cannot guarantee the correctness or completeness of the information.

Any opinions expressed here are my own and do not necessarily reflect the views of any other individual or organisation.

Please use your own judgement and conduct your own research before making any investment decisions.