On Sep 15, we have issued an updated research report on Consolidated Edison, Inc. (ED). The company’s systematic capital spending program, favorable liquidity position, positive outcome from rate plans and payment of dividends at regular intervals will likely boost the company’s future performance. However, strict regulations and volatile commodity prices are matters of concern.
This Zacks Rank #2 (Buy) stock’s second-quarter 2014 earnings and revenues surpassed the Zacks Consensus Estimate. On a year-over-year basis, the top and the bottom line increased primarily on the back of higher contribution from electric and gas businesses, supported by operating efficiencies.
Consolidated Edison is currently investing substantially in its utility infrastructure and expanding the renewable portfolio. The company spent around $1.1 billion during the second quarter of 2014 to construct utility systems. In addition, Consolidated Edison is progressing well on its several solar ventures, including the 20-megawatt White River 2 and Corcoran 2 projects. Collectively, these initiatives will enable Consolidated Edison to provide reliable services to its customers and diversify the generation mix.
Consolidated Edison maintains a stable liquidity position with cash and temporary cash investments of around $0.77 billion and $1.5 billion of commercial paper outstanding as of Jun 30, 2014. A solid financial position will help the company to pursue a steady capital investment program.
Utility providers usually recoup funds invested in infrastructure ventures from customers through utility rates hikes. Consolidated Edison’s operating results in the second quarter of 2014 benefited from changes in rate plans. Positive outcomes of rate-hike appeal will encourage the utility to invest more in infrastructure projects.
In addition to utilizing funds in several ventures, Consolidated Edison also shares profit with its shareholders in terms of paying dividends. This initiative will help the company to retain investor interest in the stock.
On the downside, we are concerned about stringent government utility rules as Consolidated Edison’s operations are mainly regulated. Any changes in regulations could involve further investments or induce the company to discontinue some of its facilities, which in turn might negatively impact its future performance.
Key Picks from the Sector
Other stocks in the utility sector looking equally good include ALLETE, Inc. (ALE), CMS Energy Corp. (CMS) and Edison International (EIX). All the stocks carry a Zacks Rank #2 (Buy).
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