Is Consolidated Edison, Inc. Destined for Greatness?

Let's see what the numbers say about Consolidated Edison (ED).

Apr 16, 2014 at 1:00PM

Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does Consolidated Edison, (NYSE:ED) fit the bill? Let's take a look at what its recent results tell us about its potential for future gains.

What we're looking for
The graphs you're about to see tell Consolidated Edison's story, and we'll be grading the quality of that story in several ways:

  • Growth: Are profits, margins, and free cash flow all increasing?
  • Valuation: Is share price growing in line with earnings per share?
  • Opportunities: Is return on equity increasing while debt to equity declines?
  • Dividends: Are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let's take a look at Consolidated Edison's key statistics:

ED Total Return Price Chart

Source: ED Total Return Price data by YCharts

Passing Criteria

3-Year* Change


Revenue growth > 30%



Improving profit margin



Free cash flow growth > Net income growth

(96.2%) vs. 5.9%


Improving EPS



Stock growth (+ 15%) < EPS growth

28.9% vs. 4.3%


Source: YCharts. * Period begins at end of Q4 2010.

ED Return on Equity (TTM) Chart

Source: ED Return on Equity (TTM) data by YCharts

Passing Criteria

3-Year* Change


Improving return on equity



Declining debt to equity



Dividend growth > 25%



Free cash flow payout ratio < 50%



Source: YCharts. * Period begins at end of Q4 2010.

How we got here and where we're going
Things don't look good for ConEd in its second assessment -- the utility provider earned a mere two out of nine possible passing grades, a big drop from the five passing grades it picked up in last year's assessment. One major source of this weakness is ConEd's weak free cash flow, which has fallen far from its net income during the past several quarters as the company invests heavily in expansions, upgrades, and repairs. As a result, the company's dividend payouts are using far more money than is evidently sustainable under current free-cash-flow levels. Weakening equity-based metrics also contributed to some of ConEd's failing grades today. Can ConEd be able to recover from the damages caused by Hurricane Sandy on the U.S. East Coast? Let's dig a little deeper to find out.

Utility stocks have remained a reliable source of stable cash flow and steady dividend payouts through the tumult of the past decade, as people will always need electricity regardless of the country's economic conditions. However, there are signs that the old reliance is not enough today -- ConEd recently reported lower-than-expected revenue and earnings per share for the fourth quarter, the result of ongoing heavy capital deployment to repair damage from Hurricane Sandy. ConEd's management also expects earnings from ongoing operations to fall by 1% through mid-2014, which has raised skepticism about ConEd's future growth prospects. Through it all, the company continues an annual dividend yield of 4.5%, which ranks it among the highest-paying utilities, ahead of NextEra Energy, Duke Energy, and Dominion Resources:

ED Dividend Yield (TTM) Chart

ED Dividend Yield (TTM) data by YCharts

However, ConEd and other utilities should fear an increase in interest rates and bond yields, which will provide an attractive alternative to dividend stocks for investors who are already worried that utilities may be in for periods of difficulty as distributed solar power becomes more viable.

Fool contributor Bill Foote notes that ConEd recently persuaded the State of New York to freeze rates for two years, a proposal still subject to final approval from New York State Public Service Commission (NYSPSC). The proposal mandates approximately 9.3% return on equity, compared to an earlier proposal from the NYSPSC of 8.3% last year. ConEd also recently announced a four-year, $12 billion capital expenditure plan to strengthen its presence in New York. According to Deutsche Bank, ConEd's partnership with the New York City Economic Development Corporation should also capitalize on increasing demand for energy-efficient solutions, which representa a $279 billion investment opportunity in the U.S.

ConEd joined with Sempra Energy (NYSE:SRE) a mere month ago to build five large-scale solar power plants in California and Nevada, representing a total 360 megawatts of generating capacity. The utility-scale solar farms, which will include Sempra's massive 250 megawatt Copper Mountain plant, should come online by the end of 2015. Fool contributor Justin Loiseau points out that ConEd and Sempra Energy each hold a 50% stake in each plant, diversifying both the risk and the opportunity evenly.

Putting the pieces together
Today, Consolidated Edison has few of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy -- or to stay away from a stock that's going nowhere.

Boost your 2014 returns with The Motley Fool's top stock
There’s a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it’s one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Alex Planes has no position in any stocks mentioned. The Motley Fool recommends Dominion Resources. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers