Con Ed Earnings: Favorable Regulatory Outcomes Drive Earnings Growth

We are reaffirming our $89 per share fair value estimate for Consolidated Edison ED after the company reported earning $0.61 per share on an adjusted basis during the second quarter, down from $0.64 during the second quarter of 2022 primarily due to the loss of earnings from the sale of its clean energy business in the first quarter. We are reaffirming our no-moat rating.

We are maintaining our full-year 2023 and long-term forecasts. Our 2023 earnings estimate is in line with management’s revised $4.85-$5.05 EPS guidance range, excluding the $2.32 per share first-half benefit from the sale of the clean energy business. We continue to forecast 6% annual earnings growth through 2025, in line with management’s 5%-7% target. Con Ed’s usage-decoupled rate structures have protected it from the weather-related earnings volatility many other utilities have experienced this year.

New rates at Con Ed’s largest subsidiary, CECONY, added $0.07 per share in the second quarter and will continue to boost earnings through 2025 based on what we considered a constructive settlement earlier this year. Rates reflect 6% annual rate base growth, $15 billion of capital investment in 2023-25, and a 9.25% allowed return on equity, up from CECONY’s previous 8.8% ROE.

Con Ed’s $1 billion share buyback during the second quarter should offset some of the dilution during the rest of the year from the lost clean energy business earnings. We expect the sale will eventually be earnings-accretive by eliminating Con Ed’s financing needs for at least the next two years.

We await initial reactions from regulators and stakeholders related to the 20-year New York gas system plan that Con Ed filed in May. Discussions could provide clues about how regulators will set rates for Con Ed’s gas system as New York aims to eliminate carbon emissions.