On Jun 9, we have issued an updated research report on Consolidated Edison, Inc. (ED). A stable liquidity position, disciplined investment program in several projects and positive outcome from rate plans are expected to boost the utility firm’s future results. In addition, payment of incremental dividends is also appreciable. However, we are concerned about volatility in commodity prices and stringent utility regulations, which may cast shadow on the company’s future performance.
Consolidated Edison, a Zacks Rank #2 (Buy) stock, reported favorable result in first-quarter 2014. Quarterly top as well as bottom line surpassed the Zacks Consensus Estimates. Quarterly earnings per share and revenues improved year over year, primarily on the back of changed rate plans of the company’s utilities and a cooler-than-normal winter.
Consolidated Edison maintained a steady liquidity profile backed by strong cash generation capacity. As of Mar 31, 2014, the company’s cash balance was around $0.1 billion and available fund of $0.83 billion under the commercial paper outstanding. In the first quarter, Consolidated Edison’s operating cash flow increased 175% to around $0.22 billion from the prior-year comparable level.
A stable financial position enables Consolidated Edison to follow a systematic capital spending program to execute the smart grid technologies and energy efficiency programs. These initiatives will enable the company to provide better services to its customers.
The Utility providers generally recover funds invested earlier in infrastructure development projects from its customers through increasing utility rates. In the first quarter, the New York electricity and gas rate plans of the utilities added $43 million to the net income. Recouping invested funds from the customers will encourage Consolidated Edison to invest more on the ventures, thereby improving reliability.
Consolidated Edison continues to focus on maximizing shareholder wealth through payment of increased dividend. In Jan 2014, the company increased its quarterly dividend rate by around 2.4% sequentially to 63 cents representing 40th consecutive increase in its annual dividend payout.
On the flip side, Consolidated Edison’s operations are highly regulated. Any modifications in regulations could involve further investments or induce the company to stop some of its operations, which in turn may impact its forthcoming performance.
Key Picks from the Sector
Other stocks in the utility sector looking equally good include Dynegy Inc. (DYN), Entergy Corporation (ETR) and NRG Energy, Inc. (NRG). All the stocks carry a Zacks Rank #1 (Strong Buy).
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