Deutsche Bank Downgrades Consolidated Edison (ED) to Sell
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Rating Summary:
2 Buy, 14 Hold, 4 Sell
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Deutsche Bank downgraded Consolidated Edison (NYSE: ED) from Hold to Sell, as they see more significant downside potential in ED stock than others in their coverage. The firm cited a challenged outlook with ROE pressures, REV reforms, and Harlem uncertainty.
Analyst Jonathan Arnold comments, "We believe ConEd faces some challenges in 2015 for a few reasons as discussed below. First, ED is unlikely to fare well in a rising rate environment as a low risk, low growth, bond-proxy regulated utility. Second, ED’s largest utility is expected to file for new rates in February at a time when ROEs in the state are under pressure as a result of NY’s formula for setting utility investment returns, which relies on the dividend discount and capital asset pricing models. Lower returns would challenge ED’s earnings growth in 2016 and beyond (our model assumes an earned ROE of 9% while NY commission Staff has most recently supported an earned return on equity of 8.7% for another NY utility). Third, NY regulators are undertaking an important review of the regulatory construct in the state, with a goal toward encouraging more energy efficiency, customer choice, and distributed generation to reduce the need for more power plants, transmission lines or other material capital projects that have historically been necessary to support load growth; while the eventual impact of the proceeding remains unclear, on its face, it would appear the initiative could be negative for NY utilities by discouraging incremental capital investment and rate base growth. Fourth, the National Transportation Safety Board has yet to complete its review of the March 2014 Harlem building explosion, which was traced to a leak in ED’s gas distribution infrastructure."
The analyst added, "We have no special insight into the ongoing NTSB investigation, as all involved parties have been prohibited from commenting on the proceeding, but it clearly remains an outstanding risk for the company, with a review by the NY PSC likely to follow"
For an analyst ratings summary and ratings history on Consolidated Edison click here. For more ratings news on Consolidated Edison click here.
Shares of Consolidated Edison closed at $64.14 yesterday.
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