In typical times, investors with years to invest look for innovative, dynamic companies in growth sectors. It is the lifeblood of a healthy, growing equity market. But as most investors/readers know, these are not typical times. And under these conditions, sometimes tried-and-true safety of capital, plus a modest return, is more than enough. Consolidated Edison (NYSE: ED) is a prudent play with the above in mind.
Utility Consolidated Edison, or "Con Ed," is the holding company for the primarily electric utility that serves the five boroughs of New York City, most of Westchester County, N.Y, other parts of New York state, Pennsylvania and New Jersey.
Residential and commercial electric utility customers represent the company's main revenue stream, comprising 63% of revenue in 2006. Natural gas customers accounted for 16%, non-utility revenue 14% and steam 5%. In short, Con Ed is a classic regulated utility play, and its results reflect that:strong, steady cash flow, low customer turnover, conservative technology implementation cycle, and a solid dividend.
Still, a funny thing happened to Con Ed on the way to its predictable-utility future: New York City, particularly Manhattan, keeps growing, and that means a decent amount of new business for Con Ed, even with the growth of alternate/renewable energy sources. Analysts see 2007/2008 revenue of roughly $13.1 billion /$14.0 billion. Meanwhile, earnings per share should hit $3.31 in 2007.
The risks? Con Ed will have to invest an above-average amount for the next 5 years to upgrade its older-than-average grid, and analysts have their eye on ED's ability to limit these capital costs to an acceptable annual amount.
Finally, Con Ed's $2.36 annual dividend -- a better than 4% yield -- and modest P/E of 13 not only improve the stock's risk/return ratio, they make the stock attractive, particularly in today's skittish market.
The First Call mean rating for ED is: Hold. [16 firms.] Mean 2008 target: $47.70. [high: $50, low: $42.]
Stock Analysis: Con Ed is a low-risk stock. Investors with an investment horizon longer than one year should be rewarded from Con Ed's shares. Sell / Stop Loss if you to purchase shares in this company: $34.
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