Consolidated Edison, Inc. (ED) is one of the nation's largest investor-owned energy-delivery companies. The New York City-based concern owns, operates, and develops renewable and energy infrastructure projects, offers wholesale and retail customers energy-related products and services, and invests in electric and gas transmission projects. The company’s stock has climbed 3% in price over the past month, fueled by its continuing efforts to expand its operational capabilities and accelerate its growth through various unique clean energy innovations.

However, the stock has lost 4.8% in price over the past six months to close yesterday’s trading session at $75.51. The company’s relatively weak fundamentals and low-profit margins imply bleak growth prospects.

In addition, Bank of America recently downgraded the stock from “Neutral” to “Underperform,” indicating bearish sentiment about the stock’s future price performance.

Here’s what we think could shape ED’s performance in the near term:

Additional Financing

In June, ED agreed to issue 10,100,000 shares of common stock. The company intended to invest the net proceeds from the stock sale in its regulated utility subsidiary, Consolidated Edison Company of New York, Inc., for construction funding and other general corporate purposes. However, using equity financing as a funding source for future projects could dilute share value for existing shareholders and should be viewed with some alarm.

Weak Financials and Profitability

For the second quarter, ended June 30, 2021, ED’s operating expenses increased 14% year-over-year to $2.55 billion. Its operating income declined 12.7% from its year-ago value to $418 million. The company's net income decreased 13.2% from the prior-year quarter to $165 million over this period. And its EPS declined 15.8% year-over-year to $0.48 over this period.

ED’s 19.4% trailing-12-months EBIT margin is 8.7% lower than the 21.2% industry average. Also, its ROC and ROA are 9.2% and 29.3% lower than the respective industry averages. Furthermore, its 8.7% trailing-12-months net profit margin is 26.1% lower than the 11.7% industry average.

Discounted Valuation

In terms of non-GAAP forward P/E, the stock is currently trading at 17.38x, which is 7.7% lower than the 18.81x industry average. Also, its 2x forward Price/Sales multiple is 17.9% lower than the 2.43x industry average. Also, ED’s 3.84x forward EV/Sales is 8.6% lower than the 4.2x industry average.

The stock’s forward 10.4x EV/EBITDA multiple is 10.5% lower than the 11.62x industry average.

Consensus Rating and Price Target Indicate Potential Downside

Of the six Wall Street analysts that have provided ratings for the stock, four rated it Sell. The $71.5 average analyst price target represents a potential 5.3% downside. The price targets range from a low of $65 to a high of $78.

POWR Ratings Reflect Uncertainty

ED has an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. The POWR ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. ED has an F grade for Sentiment. This is justified given the stock’s poor analyst ratings.

The stock also has a D grade for Growth and Momentum. The company is currently trading below its 50-day and 200-day moving averages of $74.87 and $73.99, respectively, which is in sync with its Momentum grade. In addition, ED’s weak financials and profitability are consistent with the Growth grade.

Of the 56 stocks in the F-rated Utilities -Domestic industry, ED is ranked #29.

Beyond what I’ve stated above, one can view ED ratings for Stability, Value, and Quality here.

Bottom Line

ED’s poor fundamentals pose a threat to the stock’s future price performance. In addition, ED is currently trading below its 50-day and 200-day moving averages, indicating a downtrend. Thus, we think investors should wait for an improvement in its prospects before investing in the stock.

How Does Consolidated Edison Inc. (ED) Stack Up Against its Peers?

While ED has an overall C rating, one might want to consider its industry peer, UGI Corporation (UGI), having an overall A (Strong Buy) rating.

ED shares were unchanged in premarket trading Thursday. Year-to-date, ED has gained 7.75%, versus a 21.84% rise in the benchmark S&P 500 index during the same period.

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

More...