What Does Consolidated Edison’s Valuation Signal?



Market performance

Consolidated Edison (ED) started its losing streak after its 3Q15 earnings but managed to gain some ground after the Fed’s meeting in January 2016. However, it has outperformed many utilities in the trailing 12-month returns, rising more than 15%. So far in 2016, it has risen ~6%.

We may get to see utilities (XLU), mainly regulated ones, rally further if the Fed continues to maintain a slower pace of interest rate hikes in 2016.

The chart below shows the stock price movement of Consolidated Edison (ED) with its peers Edison International (EIX) and PPL (PPL). These three have a substantial exposure to energy distribution.

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Currently, ED is trading at an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 9.6x. Its average five-year EV-EBITDA is 8.8x. It shows that ED is currently trading at a premium compared to its own five-year historical EV-EBITDA valuation.

ED’s forward EV-EBITDA for fiscal 2016, using its 2016 EBITDA estimate, comes in at 8.6x. This indicates expectations of higher EBITDA in 2016. The utility sector’s EV-EBITDA average comes in at 10.8x. In comparison, PPL (PPL) has an EV-EBITDA ratio of 11.4x, and American Electric Power (AEP) has a ratio of 8x.

The EV-EBITDA multiple is a valuation metric that indicates whether a stock is overvalued or undervalued, regardless of the company’s capital structure.


Currently, ED stock is yielding 3.8%, which is similar to the industry average. Its five-year compounded annual dividend growth rate stands at 1.8%.


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