Summary

• I believe this stock is roughly 15-20% undervalued at its current price of $70.
• Con Ed is four years shy of Dividend King status and shows no signs of slowing down with the next increase expected next month.
• The stock is currently trading several dollars below where I initially purchased it a little over two years ago.
• I have updated my dividend discount model with the most recent information to support my 15-20% thesis.

In October of 2018 I wrote an article about "The Electric Sunshine Company", Consolidated Edison Inc. (ED). At the time I said:

I believe at this time the shares of Con Ed are undervalued roughly 10%.

So I purchased some shares figuring I would happily take what was then a 3.8% yield to wait for the stock to revert back to a "fair" valuation. It worked out quite well for me too because the stock climbed from my purchase price of $76.11 to hit a 52-week high of $95.10 at the end of this past January, so a 25% gain in just over a year, not including dividends. I think we all know what else happened around the end of January, and ED was not immune to the ravages of COVID.

Well as I type this the stock is trading below my purchase price of $76.11, it is yielding 4.4%, and I think the shares might be even more undervalued than they were two years ago, and a repeat of the 25% gain is certainly not out of the question.

So let's take a look at why I think this stock is an even better buy than it was when I purchased it in 2018.

Price to EBITDA

When I purchased the stock in late 2018 the EBITDA was approximately $4.0 billion for the TTM period. Currently that figure stands at over $4.5 billion and the stock is trading lower than it was two years ago. You can see below that the price of the stock has not kept up with the growth in EBITDA.

Data by YCharts

Revenue and Earnings

Revenue for the most recent quarter was $3.33 billion which is slightly less than they collected in the same quarter last year (source: Seeking Alpha). However, net income and earnings per share are both slightly higher.

It is important to note that these same figures on a TTM basis are a bit worse than FY 2018 numbers, and perhaps this explains the current price action. However I find this chart below interesting:

Data by YCharts

If you look at the last eight quarters and compare each to the same quarter of the previous year you can see that starting with the June 2020 quarter the comparisons favor this year. Dec 2018 was much better than Dec 2019 and the same goes for March. In the 4th quarter last year they reported $0.89 EPS. Time will tell if they can top that in this current quarter. With economic activity in that region depressed due to the virus I would guess they might not, but I also would guess that with the vaccine being administered as we speak that future quarters will revert to a more "normal" level sooner rather than later.

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