Consolidated Edison's Weather Normalization Eases Steam Business Volatility: Analyst

Mizuho analyst Anthony Crowdell reiterated a Neutral rating on Consolidated Edison, Inc. ED, lowering the price target to $89 from $95.

The company entered into a joint proposal for its steam business. The three-year deal is based on a 9.25% ROE (10.0% ask), a 48% equity ratio (50% ask), and a new weather normalization mechanism, which will help stabilize ED's earnings, notes the analyst. 

Most importantly, ED included a weather normalization mechanism, which should alleviate the volatility in the company's steam business.

In the company's electric business, Crowdell believes that New York Public Service Commission will approve the JP (without modification) with new rates in effect on November 1.

Once the NYPSC approves the Steam case, ED's subsequent rate filing will be an O&R (4% of rate base) rate filing expected in January 2024, adds the analyst. 

While New York ROEs continue to be below the national average of 9.6%, the analyst continues to see support for the utilities' capital programs.

Due to the mild 1Q23, Steam is earning a 0.5% ROE, the analyst notes. 

Crowdell believes the approval of the Steam JP will enable the segment to earn its allowed return regardless of weather volatility. 

For FY23, the analyst expects the company's EPS to be $4.86.

For FY24, Crowdell estimates EPS to be $5.15.

For FY25, the analyst expects the company's EPS to be $5.44.

Price Action: ED shares are trading lower by 2.04% to $86.55 on the last check Tuesday.