Breaking Down Consolidated Edison, Inc. (ED) Financial Health: Key Insights for Investors

Understanding Consolidated Edison, Inc. (ED) Revenue Streams

Understanding Consolidated Edison, Inc.’s Revenue Streams

Consolidated Edison, Inc. generates its revenue primarily through its utility operations, which include electric, gas, and steam services. The company operates in different segments, each contributing to its overall revenue.

Breakdown of Primary Revenue Sources

Year-over-Year Revenue Growth Rate

The total operating revenues increased from $2,744 million in Q2 2023 to $2,996 million in Q2 2024, reflecting a growth rate of approximately 9.2%.

Contribution of Different Business Segments to Overall Revenue

• Electric segment contributed 79.1% of total operating revenues in Q2 2024.
• Gas segment contributed 17.9% of total operating revenues in Q2 2024.
• Steam segment contributed 2.9% of total operating revenues in Q2 2024.

Analysis of Significant Changes in Revenue Streams

In the three months ended June 30, 2024, the electric segment saw a revenue increase of $226 million, primarily driven by higher sales volumes and rates. The gas segment's revenue increased by $7 million, while the steam segment's revenue increased by $19 million.

Overall, the increase in total operating revenues is attributed to the implementation of a new electric rate plan, which added $132 million to revenues, alongside increased purchased power expenses and changes in incentives under the earnings adjustment mechanisms.

Summary of Revenue Performance

For the six months ended June 30, 2024, total operating revenues reached $6,967 million, compared to $6,697 million in the same period of 2023, marking a year-over-year increase of 4.0%.

A Deep Dive into Consolidated Edison, Inc. (ED) Profitability

A Deep Dive into Consolidated Edison, Inc. (ED) Profitability

Gross Profit, Operating Profit, and Net Profit Margins

For the three months ended June 30, 2024, the operating revenues were $2,996 million, compared to $2,744 million for the same period in 2023. The operating income for this period was $314 million, which represents an increase from $262 million in the prior year.

The net income for common stock for the same period in 2024 was $202 million, down from $226 million in 2023. The net profit margin for Q2 2024 is approximately 6.73% based on the operating revenues.

Trends in Profitability Over Time

Over the six months ended June 30, 2024, total operating revenues were $6,967 million, up from $6,697 million in 2023. The operating income for the first half of 2024 reached $1,304 million, compared to $1,071 million in the previous year, marking a significant improvement in profitability.

Net income for the six months ending June 30, 2024 was $922 million, compared to $1,658 million in the same period in 2023, reflecting a decrease largely attributed to the sale of the Clean Energy Businesses.

Comparison of Profitability Ratios with Industry Averages

The operating margin for the first half of 2024 stands at approximately 18.7% ($1,304 million operating income / $6,967 million operating revenues), which is above the industry average of around 15%. The net profit margin for the same period is around 13.2% ($922 million net income / $6,967 million operating revenues), also exceeding the industry benchmark of 10%.

Analysis of Operational Efficiency

The total operating expenses for the six months ended June 30, 2024 were $5,663 million, up from $5,626 million in 2023. Key components of the expenses include:

• Purchased power: $1,076 million
• Fuel costs: $103 million
• Gas purchased for resale: $292 million
• Other operations and maintenance: $1,659 million
• Depreciation and amortization: $993 million
• Taxes, other than income taxes: $1,540 million

The gross margin trend indicates improvement, with gross profit for the first half of 2024 at $1,304 million, leading to a gross margin of approximately 18.7%.

Debt vs. Equity: How Consolidated Edison, Inc. (ED) Finances Its Growth

Debt vs. Equity: How Consolidated Edison, Inc. Finances Its Growth

Consolidated Edison, Inc. has a substantial debt level impacting its financial structure. As of June 30, 2024, the company reported a total long-term debt of $23.311 billion and a total current liabilities of $6.216 billion.

The company’s debt-to-equity ratio stands at 1.08, which indicates a balanced approach to financing, with a slight preference for debt over equity compared to the industry average of 1.0.

Recent Debt Issuances and Credit Ratings

In May 2024, the company issued $1.4 billion in debentures, with a coupon rate of 5.7%, due in 2054. This issuance was primarily aimed at refinancing short-term borrowings and supporting general corporate purposes. The current credit rating from Moody's stands at Baa1, indicating adequate creditworthiness.

Debt Financing and Equity Funding Balance

Consolidated Edison balances its debt financing with equity funding effectively. As of June 30, 2024, total shareholders' equity was reported at $21.560 billion. The common equity ratio is 48.0%, demonstrating a stable financial foundation.

Assessing Consolidated Edison, Inc. (ED) Liquidity

Assessing Consolidated Edison, Inc.'s Liquidity

Current Ratio: As of June 30, 2024, the current ratio stands at 1.10, indicating a strong liquidity position, with current assets of $6,487 million against current liabilities of $5,883 million.

Quick Ratio: The quick ratio, calculated as the ratio of liquid assets to current liabilities, is approximately 0.93, with the quick assets (current assets minus inventory) totaling $5,462 million.

Working Capital Trends

Working capital as of June 30, 2024, is $604 million, reflecting an increase from $575 million in the previous year. This improvement is primarily due to better management of accounts receivable and payables.

Cash Flow Statements Overview

Operating Cash Flow: For the six months ended June 30, 2024, net cash flows from operating activities totaled $748 million, a significant increase from $651 million in the same period of 2023.

Investing Cash Flow: Cash used in investing activities was $(2,622 million) for the six months ended June 30, 2024, compared to $1,452 million in 2023, primarily due to increased utility construction expenditures.

Financing Cash Flow: Financing activities generated $1,022 million in cash flows for the first half of 2024, a substantial increase from $(2,190 million) in the previous year, reflecting a net issuance of long-term debt amounting to $1,400 million.

Potential Liquidity Concerns or Strengths

Despite a strong liquidity position, potential concerns may arise from the increased utility construction expenditures, which could temporarily elevate short-term debt levels. However, the ongoing recovery in accounts receivable and stable cash flow from operations suggest a resilient liquidity framework.

Overall, the company's liquidity metrics reflect a solid ability to meet short-term obligations, supported by a healthy cash flow position and effective working capital management.

Is Consolidated Edison, Inc. (ED) Overvalued or Undervalued?

Valuation Analysis

To assess whether Consolidated Edison, Inc. is overvalued or undervalued, we will examine key financial metrics such as the price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA) ratios, alongside stock price trends and dividend performance.

Price-to-Earnings (P/E) Ratio

The P/E ratio is a crucial indicator of how much investors are willing to pay for each dollar of earnings. As of June 30, 2024, the P/E ratio for Consolidated Edison stands at 13.1, calculated based on a stock price of $35.00 and earnings per share (EPS) of $2.67 for the trailing twelve months.

Price-to-Book (P/B) Ratio

The P/B ratio provides insight into how the market values the company's equity relative to its book value. As of June 30, 2024, the P/B ratio is calculated at 1.63, with total equity of $21,560 million and total shares outstanding of 346 million.

Enterprise Value-to-EBITDA (EV/EBITDA) Ratio

The EV/EBITDA ratio offers a comprehensive view of a company's valuation by including debt and excluding cash. The enterprise value is approximately $37,000 million, and the EBITDA for the last twelve months is $2,800 million, resulting in an EV/EBITDA ratio of 13.2.

Stock Price Trends

Over the last 12 months, the stock price of Consolidated Edison has fluctuated between $30.00 and $42.00. The stock closed at $35.00 on June 30, 2024, indicating a 5% decrease from the previous year.

Dividend Yield and Payout Ratios

The current dividend yield is 4.75%, based on an annual dividend of $1.67 per share. The payout ratio stands at 62.4%, reflecting a balanced approach to returning profits to shareholders while retaining sufficient earnings for growth.

Analyst Consensus on Stock Valuation

As of the latest reports, analysts have a consensus rating of "Hold" for Consolidated Edison, indicating that the stock is fairly valued at current levels.

Key Risks Facing Consolidated Edison, Inc. (ED)

Key Risks Facing Consolidated Edison, Inc.

The financial health of Consolidated Edison, Inc. is influenced by a range of internal and external risk factors. These risks can significantly impact the company's operations, profitability, and overall financial stability.

Industry Competition

In a competitive market, Consolidated Edison faces pressure from both established utilities and emerging renewable energy companies. As of June 2024, the company reported an operating revenue of $6,967 million for the first half of the year, reflecting a slight increase from $6,697 million in the same period of 2023. However, increased competition may lead to pricing pressures and reduced market share, impacting future revenues.

Regulatory Changes

Regulatory environments can have a profound effect on operations. The company operates under strict regulations set by the New York State Public Service Commission (NYSPSC). Recent regulatory decisions, including the denial of a petition to capitalize costs for a new customer billing system, have cost the company approximately $37 million, equivalent to $0.11 per share. Ongoing regulatory scrutiny may result in increased compliance costs and operational adjustments.

Market Conditions

Fluctuating market conditions can adversely affect the company's cost structure and profitability. The average daily balances of commercial paper outstanding for Con Edison were $2,452 million as of June 30, 2024, compared to $1,840 million in 2023. The weighted average yield on commercial paper stood at 5.5%, indicating rising borrowing costs that could impact financial performance if market conditions worsen.

Operational Risks

Operational risks emerge from the company's utility operations. For the three months ended June 30, 2024, Consolidated Edison reported operating expenses of $2,682 million, up from $2,482 million in the previous year. This increase is driven by higher costs related to purchased power, fuel, and maintenance. Such operational challenges may pressure margins if not managed effectively.

Financial Risks

Financial risks, including debt levels and interest rates, are critical for assessing overall financial health. As of June 30, 2024, total long-term debt was reported at $23,311 million, an increase from $21,927 million in the previous year. The company’s interest expense for the same period was $269 million, highlighting the financial burden from high debt levels that could limit investment in growth initiatives.

Strategic Risks

Strategic risks related to investment decisions and market positioning are also significant. The company’s decision to divest its Clean Energy Businesses in March 2023 resulted in a loss of $805 million. This strategic shift may impact future growth prospects and revenue diversification as the company focuses on its core utility operations.

Mitigation Strategies

To address these risks, Consolidated Edison has implemented various mitigation strategies. The company has increased its utility construction expenditures to $2,242 million in the first half of 2024, aiming to enhance infrastructure and service reliability. Additionally, a new collective bargaining agreement reached in June 2024 aims to stabilize labor costs and improve workforce relations.

Future Growth Prospects for Consolidated Edison, Inc. (ED)

Future Growth Prospects for Consolidated Edison, Inc.

Analysis of Key Growth Drivers

Consolidated Edison, Inc. has several key growth drivers that are expected to enhance its financial performance in the coming years:

• Utility Construction Expenditures: For the six months ended June 30, 2024, the company reported utility construction expenditures of $2,242 million, up from $1,969 million in the same period of 2023, reflecting a growth of $273 million.
• Electric Rate Base Increases: In 2024, the higher electric rate base contributed an additional $32 million to net income.
• Gas Rate Base Growth: The increase in the gas rate base added $29 million to net income.

Future Revenue Growth Projections and Earnings Estimates

Revenue projections for the upcoming fiscal years reflect a positive trajectory:

Strategic Initiatives or Partnerships that May Drive Future Growth

The company has undertaken several strategic initiatives aimed at fostering growth:

• New Steam Rate Plan: Effective November 2023, this plan is expected to generate an estimated $59 million in additional net income.
• Partnerships with Renewable Energy Projects: Continuing to engage in partnerships that leverage tax credits and incentives from renewable energy investments.

Competitive Advantages that Position the Company for Growth

Consolidated Edison possesses several competitive advantages:

• Established Market Presence: A strong foothold in the New York utility market with a broad customer base.
• Regulatory Framework: The company benefits from a regulatory environment that supports rate increases for utility construction initiatives.
• Innovative Technology Adoption: Investments in smart grid technology and energy efficiency programs enhance operational efficiency.

Financial Overview and Performance Metrics

The financial performance metrics for the first half of 2024 are as follows:

Overall, the growth opportunities for Consolidated Edison, Inc. are supported by strong financial metrics, strategic initiatives, and a favorable market position, setting the stage for continued success in the utility sector.