Citi On Consolidated Edison: 'Solid Story Though Well Understood'

Although Consolidated Edison, Inc. (NYSE: ED) is a “simple, regulated story,” backed by a strong management team, Citi’s Praful Mehta said in a report. He initiated coverage of the company with a Neutral rating and a price target of $76.

Regulated Story

The valuation of Consolidated Edison’s regulated business is expected to grow ~3.5 percent after 2019. The strong management team has “strategic clarity” and is focusing on the company’s regulated or contracted operations, Mehta commented.

“The move away from merchant operations and into the more contracted renewables and transmission businesses supports the contracted business model while expanding on potential growth avenues,” the analyst wrote.

Limited Growth At Utilities

Peak electric usage growth from 2016 to 2020 is expected to remain below 0.5 percent. Low load growth would limit growth at utilities, which is estimated at ~4 percent through 2019.

Consolidated Edison develops long-term contracted solar and wind projects and there are plans to invest ~$2 billion over the next three years. “While we like its growth potential, renewables is a small part of the story for now and adds $5/share of value,” Mehta mentioned.

Electric and Gas transmission appear to be “the most sustainable growth drivers” for utilities and the business is valued at $6 per share.

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