Consolidated Edison stock rated Buy, driven by expected improvements in ROEs and treasury rate movements

On Tuesday, Consolidated Edison (NYSE:ED) saw its stock rating upgraded from Neutral to Buy by a Citi analyst. Accompanying this upgrade, the analyst also increased the price target for the utility company's shares to $116.00, up from the previous target of $103.00.

The optimistic outlook for Consolidated Edison is based on the anticipation of upcoming rate cases. The analyst predicts these will demonstrate a positive stance on return on equities (ROEs), which is expected to spur an incremental earnings per share (EPS) growth of approximately 2.7% over the next four years.

This growth forecast is attributed to a combination of factors, including what the analyst described as "regulatory priorities, datacenter noise in staff calculation, and treasury rate movements." These elements are believed to contribute to the company's financial performance before even considering the potential benefits of favorable future legislation in New York.

The increased price target of $116 reflects the analyst's confidence in Consolidated Edison's ability to navigate the regulatory environment effectively and capitalize on the mentioned factors to enhance shareholder value.

In other recent news, Consolidated Edison reported an adjusted earnings per share (EPS) of $0.59 for the second quarter of 2024, slightly under the BofA Securities estimate but above the consensus. The company's operating revenue increased to $3.22 billion, primarily driven by higher demand for cooling during a heat wave.

However, operations and maintenance expenses also rose, showing a 13.9% increase from the same period last year. Despite these changes, Consolidated Edison has maintained its full-year 2024 EPS guidance, projecting earnings between $5.20 and $5.40.

In terms of analyst ratings, Jefferies initiated coverage on Consolidated Edison with a Hold rating, citing upcoming decisions on Returns on Equity (ROEs) as potential influencers of the company's financial performance. BofA Securities raised its price target for Consolidated Edison from $97.00 to $109.00, maintaining a Buy rating. However, Barclays downgraded the company's stock from Equal Weight to Underweight, citing overvaluation, and adjusted its price target to $92.

In other company news, the New York State Department of Public Service supported rate cases for Consolidated Edison's subsidiary Orange & Rockland (O&R). Another subsidiary, Consolidated Edison Company of New York (CECONY), adjusted its expected growth rate of peak gas demand for the period from 2025 to 2029. Lastly, Kirkland B. Andrews was appointed as the new CFO of Consolidated Edison, following the retirement of Robert Hoglund.

InvestingPro Insights

Consolidated Edison's recent stock upgrade aligns with several positive indicators from InvestingPro. The company's strong dividend history is particularly noteworthy, with InvestingPro Tips highlighting that ED has raised its dividend for 49 consecutive years and maintained payments for 54 years. This consistent dividend growth, coupled with a current yield of 3.22%, underscores the company's commitment to shareholder returns, which may be further bolstered by the anticipated EPS growth from upcoming rate cases.

The stock's recent performance has been robust, with InvestingPro data showing a 15.1% price total return over the past three months and a 21.27% return over the past year. This aligns with the InvestingPro Tip indicating that ED is trading near its 52-week high, currently at 97.22% of that peak. The strong recent performance and the analyst's upgraded price target suggest potential for further upside.

However, investors should note that ED's P/E ratio stands at 19.9, which may indicate the stock is fairly valued at current levels. Additionally, while the company is expected to remain profitable this year, an InvestingPro Tip suggests that net income is expected to drop, which could impact future performance.

For a more comprehensive analysis, InvestingPro offers 8 additional tips for Consolidated Edison, providing deeper insights into the company's financial health and market position.

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