Recent stock performance snapshot

Consolidated Edison (ED) has given investors a mixed return profile recently, with the stock up 1.1% over the past day and 3.0% over the past week, but slightly down over the past 3 months.

At a share price of $108.54, the stock’s recent uptick sits against an 8.55% year to date share price return and a 7.73% total shareholder return over the past year. This suggests that momentum has been steady rather than accelerating.

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With ED trading close to its analyst price target and recent returns in a moderate range, the key question is whether there is still mispricing or whether the stock already reflects its future growth.

Price-to-earnings of 18.6x: Is it justified?

On a P/E of 18.6x at a share price of $108.54, Consolidated Edison trades at a small discount to both peer and wider integrated utilities averages, which positions it as modestly cheaper than similar stocks rather than stretched.

The P/E multiple compares what investors are currently paying for each dollar of earnings, and it is widely used for regulated utilities where earnings tend to be more predictable. With ED, this multiple sits against earnings growth of 9.1% per year over the past 5 years and 14% over the past year, as well as a forecast earnings growth rate of 7.93% per year. In that context, the market appears to be pricing in steady rather than aggressive profit expansion.

Compared with peers, ED screens as good value. Its 18.6x P/E sits below the peer average of 20.2x and below the global integrated utilities average of 18.9x, suggesting investors are paying a little less for each dollar of earnings than the wider group. It also sits below an estimated fair P/E of 23x. This indicates there is room for the market multiple to move closer to that level if sentiment or earnings expectations shift.

Result: Price-to-earnings of 18.6x (UNDERVALUED)

However, the thesis can be challenged if regulated returns tighten, or if revenue and net income growth of 3.98% and 7.93% fail to persist.

Another view: DCF points in a different direction

While the P/E of 18.6x hints at some upside to a fair ratio of 23x, the SWS DCF model is more conservative. On this view, ED at $108.54 sits slightly above an estimated future cash flow value of $106.92, which frames the stock as modestly overvalued instead.

That gap is small in dollar terms, but it raises a useful question for you: is the earnings-based upside more convincing than the cash-flow-based caution, or vice versa?

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 49 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

There are mixed messages on value and risk here, so it may help to review the underlying data yourself and make a prompt decision based on what you see across the 4 key rewards and 3 important warning signs

Looking for more investment ideas?

If ED appears close to fully priced, you do not need to stop there. Broaden your watchlist now and let the data surface other potential opportunities for you.

• Target potential mispricings by scanning 49 high quality undervalued stocks, which combines solid fundamentals with room for a re rating.
• Strengthen your income focus by checking out 10 dividend fortresses, built around higher yielding companies.
• Prioritise resilience by reviewing 66 resilient stocks with low risk scores, which scores well on financial strength and stability.

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.