Deutsche Bank Downgrades Consolidated Edison

Deutsche Bank downgraded Consolidated Edison, Inc. ED Wednesday from Hold to Sell.

Analysts led by Jonathan Arnold saw “more significant downside potential in ED stock than others” in the firm’s coverage.  Arnold cited four reasons:

1.  “ED is unlikely to fare well in a rising rate environment as a low risk, low growth, bond-proxy regulated utility.”

2.  “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.”

3.  “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...it would appear the initiative could be negative for NY utilities by discouraging incremental capital investment and rate base growth.”

4.  “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. 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.”

Consolidated Edison, Inc. recently traded at $64.04, down 0.16 percent.