Consolidated Edison (ED) has traded lower recently, with the stock down about 4% over the past month and about 7% over the past 3 months. This has prompted investors to reassess the utility’s current valuation and income profile.

Despite the recent pullback, the 1-day share price return of the stock fell 1.65%, and the 7-day share price return declined 0.89%. The year-to-date share price return of 5.37% and 1-year total shareholder return of 4.38% point to cooler momentum after stronger multi year gains, including a 5-year total shareholder return of 58.89%.

If you are comparing Consolidated Edison with other utility focused opportunities, it could be worth scanning companies tied to grid and transmission investment using our 38 power grid technology and infrastructure stocks

So with Consolidated Edison trading below recent levels but only modestly under some valuation estimates, are you looking at an underappreciated, highly regulated utility, or is the stock already pricing in its growth and income potential?

Price-to-Earnings of 18x: Is it justified?

On a P/E of 18x, Consolidated Edison screens as reasonably priced relative to both its own earnings profile and other integrated utilities, given the current $105.36 share price.

The P/E multiple compares the share price to earnings per share, so it effectively shows how much you are paying for each dollar of current earnings. For a regulated utility such as Consolidated Edison, where earnings tend to be more stable than many other sectors, the P/E ratio is a commonly watched yardstick for how the market is weighing income and growth prospects.

Here, the stock is described as good value versus peers and the global Integrated Utilities industry, with its 18x P/E sitting below the peer average of 20.2x and the sector average of 19.3x. It also sits below an estimated fair P/E of 22.9x, a level the market could move toward if sentiment or growth expectations shift closer to that fair ratio.

Result: Price-to-Earnings of 18x (UNDERVALUED)

However, investors still need to watch for regulatory shifts related to allowed returns, as well as any large capital spending burdens that could pressure earnings and dividend flexibility.

Another view using future cash flows

While the 18x P/E suggests room on the upside, the SWS DCF model also points to only a small gap, with Consolidated Edison trading around $105.36 versus an estimated future cash flow value of about $107.06. That is a modest 1.6% discount, so how much margin of safety do you really have here?

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 50 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

With mixed signals on value and income in the rest of the article, it makes sense to review the numbers yourself and decide quickly where you stand using 4 key rewards and 3 important warning signs.

Looking for more investment ideas?

If you are serious about making your capital work harder, do not stop at a single utility stock. Broaden your watchlist with focused stock ideas built from the Simply Wall St Screener.

• Target reliable income and stability by checking out companies that stand out as potential 12 dividend fortresses for investors who care about consistent payouts.
• Hunt for mispriced opportunities by reviewing 50 high quality undervalued stocks that combine quality fundamentals with room for a better market assessment.
• Protect your downside by focusing on 66 resilient stocks with low risk scores that score well on resilience and financial strength before the crowd catches on.

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.