Recent price performance and business profile

Consolidated Edison (ED) has recently drawn attention after the stock fell about 6% over the past month and roughly 8% over the past 3 months, contrasting with a modest 3% total return over the past year.

The company operates regulated electric, gas, and steam delivery businesses serving millions of customers in New York City, Westchester County, and nearby regions, with US$17.2b in revenue and US$2.2b in net income.

With the share price down 4.6% over the past week and 6.2% over the past month, but a modest gain year to date, recent momentum looks softer even though multi year total shareholder returns remain positive.

If you are comparing Consolidated Edison with other power and grid related opportunities, it can help to scan a focused list of 33 power grid technology and infrastructure stocks

So with ED drifting lower in recent weeks yet carrying a value score of 4 and trading at only about a 3% discount to one intrinsic estimate, should you see hidden upside here or should you assume the market is already pricing in future growth?

Price-to-Earnings of 17.7x: Is it justified?

On a simple snapshot, Consolidated Edison trades on a P/E of 17.7x, which screens as good value against both peers and the wider global integrated utilities industry.

The P/E ratio compares the current share price to earnings per share, so for a regulated utility like ED it reflects what investors are willing to pay for each dollar of current earnings. When that multiple sits below peer and industry averages, it suggests expectations for future earnings or risk are being priced differently.

Here, ED is described as trading at good value relative to its peers and sector, with its 17.7x P/E below the peer average of 20.2x and the global integrated utilities industry average of 18.8x. The P/E is also below an estimated “fair” P/E of 21.7x. That figure represents a reference level used in this framework to assess how the market may value ED if earnings quality and growth trends are consistent with the assumptions behind that fair ratio.

Result: Price-to-Earnings of 17.7x (UNDERVALUED)

However, you still need to watch for regulatory shifts and higher capital spending, which could pressure returns and challenge the idea that ED trades at a simple discount.

Another view: what does the cash flow say?

While the P/E of 17.7x suggests the stock is trading at a discount to peers and a fair ratio of 21.7x, the SWS DCF model is more restrained. It shows a fair value estimate of about $106.92 versus the current $103.60, implying only a modest undervaluation of roughly 3%.

That smaller gap means the market is already pricing in a fair amount of ED's earnings and cash flow profile. The question is whether a few dollars of potential upside is enough once you factor in utility specific risks and funding pressures.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Consolidated Edison for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 47 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

Curious whether this mix of caution and potential fits your own view on ED's outlook and valuation? Take a closer look at the data, weigh the trade offs, and review the 4 key rewards and 2 important warning signs

Looking for more investment ideas?

If ED does not fully match what you are after, do not stop here. Broaden your watchlist and put other high quality ideas on your radar.

• Target potential mispricing by scanning a focused set of 47 high quality undervalued stocks that pair solid fundamentals with appealing valuations.
• Build a steadier income stream by reviewing 10 dividend fortresses that currently combine higher yields with substantial business scale.
• Prioritise resilience by checking 62 resilient stocks with low risk scores that score well on financial strength and business risk metrics.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.