Citigroup Reiterates Buy on Consolidated Edison; PT $48 (ED)
3/19/2010-Citigroup reiterated its Buy rating on Consolidated Edison (NYSE: ED) with a $48 price target as it continues to believe that the stock's predictability makes it a core part of any yield-oriented portfolio.
Analyst Brian Chin said, "ED shares, like many defensive electric utility shares, currently have a dividend yield of ~5%. We believe this dividend yield is too high relative to 10 year Treasury yields (including both Citi's 12 month forecast of 4.25% yields by 1Q11 and a repeal of the dividend tax cut at year end 2010), given that historically, regulated utility dividend yields trade below 10 year Treasury yields. Based on our outlook for Treasury yields, our non-consensus view is that one year forward regulated defensive P/E multiples will be at 14x in 12 months. We apply our 14x multiple to our 2011 ED EPS forecast to arrive at our $48 target price. Our target price implies an expected total return of 13.6%."
Chin continued, "ED is not a stock with sizzle. But, ConEd has revenue decoupling, fuel clauses, formulaic return calculations, and A-level credit. For relatively predictable financial results and strong dividend yield, we recommend ED shares as a core part of any yield-oriented portfolio."
For 2010, the bank expects the company to report EPS of $3.22 versus consensus estimates of $3.26.
Write to Chip Brian at cbrian@tradethetrend.com
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