Con Ed Earnings: Near-Term Growth Depends on Successful Regulatory Outcome in New York

We are reaffirming our $88 per share fair value estimate for Con Ed ED after the company reported earning $1.83 per share on an adjusted basis during the first quarter, up from $1.47 during the first quarter of 2022. The adjusted results exclude the $2.25 per share earnings benefit from the sale of the clean energy business during the quarter. We are reaffirming our no-moat and stable moat trend ratings.

We are maintaining our full-year 2023 and long-term forecasts after reviewing the company’s operational and regulatory updates. Unusually warm winter weather did not affect earnings because of Con Ed’s usage-decoupled rate structures. Our 2023 earnings estimate is in line with management’s $4.75-$4.95 EPS guidance range, excluding the clean energy sale. We continue to forecast 6% annual earnings growth through 2025, in line with management’s 5%-7% target.

Con Ed’s New York gas and electric utility, CECONY, reached what we consider a constructive settlement during the first quarter that would set customer rates through 2025 and supports our growth forecast. The settlement is based on 6% annual rate base growth and a 9.25% allowed regulatory return on equity. Although the allowed ROE is lower than the sector average, it is up from CECONY’s current 8.8% allowed ROE, a positive for investors.

The settlement supports our $15 billion of capital investment forecast in 2023-25, slightly higher than management’s plan. We think clean energy policy in New York will support incremental investment opportunities, similar to the $810 million Brooklyn Clean Energy Hub announced in April that would improve reliability and potentially interconnect offshore wind projects.

A key long-term concern for investors is the future of Con Ed’s gas distribution business as New York aims to eliminate all fossil fuels. We await a report from Con Ed due by the end of May that will detail its 20-year plan for its downstate New York gas system.