Consolidated Edison (ED)
Servicios públicos / Electricidad, gas y vapor (Nueva York, regulada)
The largest regulated distributor of electricity, gas, and steam in New York: CECONY (a monopoly in New York City) + O&R (southeastern New York and northern New Jersey), ~100% regulated business (unlike a hybrid utility with an unregulated renewables arm) and with a capital plan that nearly doubles by 2030 (from ~$5,000M to ~$8,600M/year) to sustain electric reliability amid the capacity shortfall identified by NYISO and data center demand. At ~$107 (P/E 18× TTM earnings) the base 5-year return is around ~$124 (+3%/year in price, +6% with the dividend): Fairly valued — a solid and stable regulatory moat, with a growing investment plan financed in part by material equity issuance that weighs on per-share EPS growth.
Moat Compounder estimates the intrinsic value of Consolidated Edison (ED) at $124 per share on a five-year horizon. With the stock at $107.20 at 2026-10-12 close, the expected total return is 6.4% per year: fairly valued. The analysis draws on 10-K FY2025 and 10-Q Q1 2026. Analysis dated 2026-08-06.
- Price
- $107.20
- Intrinsic value (5y, base)
- $124
- Total annual return (5y)
- 6.4%
- Status (nominal)
- Fairly valued
- Margin of safety
- +8%
The essentials
- Con Edison is a 100% regulated holding company: CECONY serves ~3.7 million electric customers and ~1.1 million gas customers across New York City (a territorial monopoly) and operates the largest steam distribution system in the US (~16,975 MMlb/year to ~1,490 customers); O&R serves ~0.3 million electric customers in southeastern New York and northern New Jersey.
- In January 2026 the NYSPSC approved a new electric rate plan for CECONY (2026-2028) with an authorized ROE of 9.40% (vs 9.25% under the prior plan, under which the company earned ~9.34% on average) and an average rate base growing from $32,935M to $39,174M over the three-year period (~9%/year) — the real engine of the utility's earnings, not revenue (which merely passes through the cost of purchased power, at no margin, due to revenue decoupling).
- The consolidated capital plan nearly doubles toward 2030 (from $4,996M in 2025 to $8,588M in 2030, ~$37,700M cumulative), driven by the electric capacity deficit identified by the NYISO for New York City starting in 2026 and by data center demand — financed with debt (~$16,100M planned for 2026-2030) and a material equity issuance (~$5,600M planned, in addition to the dividend reinvestment and employee stock purchase plans) that dilutes per-share EPS more than at a less capital-intensive utility.
Intrinsic value — two valuation methods
Total return at 5 years: 6.4%/year = 3.0% appreciation + 3.5% dividend. The target price ($124) is ex-dividend; the $20 in dividends collected over 5 years are added separately.
By both methods, the value today (DCF $124 · Multiples $117) exceeds the market price ($107).
Pillars of the analysis
The verdict — today vs 5 years
Today — fairly valued: at $107 trades ~8.2% below its value discounted to today (~$117); the discount is positive but does not reach the margin of safety we require (≥38%).
At 5 years — En valor: the target price ($124) plus dividends yield between the 4% floor and the 10% average return — a reasonable return, though without the margin of a great investment.
The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$75.
Thesis
The business
Con Edison is the purest utility in the group: a regulated monopoly in electricity, gas and steam in New York City (CECONY) and southeastern New York/northern New Jersey (O&R), with no unregulated growth arm adding market risk. It earns what the regulator authorizes (9.40% ROE in CECONY's new electric plan, 2026-2028) on a rate base growing strongly (~9%/year over the current three-year period) under the reliability plan addressing New York City's capacity deficit.
The valuation
It is valued on a P/E basis over attributable net income, which gives equity value directly (debt is already reflected in earnings, so it is not subtracted again). At ~$107 it trades at 18× TTM earnings ($2,217M in the twelve months ended June 30, 2026). Year 1 is not extrapolated from the trajectory: it is anchored to the guidance the company reaffirmed on August 6, 2026 — adjusted earnings per share of $6.00 to $6.20 for 2026, versus $5.70 in 2025 — and the adverse and favorable scenarios anchor at the extremes of that same range. Measured in GAAP earnings, the path starts at +6.0% and not at the ~+12% underlying rate, because the window excludes the non-recurring after-tax gain of $134M from the sale of the Mountain Valley Pipeline stake; it then decelerates from +7.6% to +5.5% by year 5 (uncertainty from a new rate case starting in 2029, already under the more demanding framework of the 2026 Chapter 58 Law, weighs on the last two years), with the multiple compressing from 18× to 17x — within the band for a pure regulated utility, without the growth premium of a utility with a renewables arm. Dilution from the equity issuance that finances capex (~2-2.7%/year, both actual and planned) lowers per-share EPS growth below that of aggregate earnings. That gives ~$124/share → a price CAGR of +3%, +6% with the dividend (yield 3.3%, growing ~3.5%/year).
The margin of safety
It trades close to intrinsic value, far from the required margin of safety. The base return (+6% total: +3%/year of price plus the dividend) sits in the modest-return zone, below the hurdle for a great investment (~15%). The verdict is Fairly valued: a business with a solid, predictable regulatory moat, trading in line with its comparable group — with no clearly identifiable source of discount (§9), which demands caution: it is not evidently cheap, it merely looks reasonable for a business of stable quality.
What to watch
Three things. Execution of CECONY's 2026-2028 electric rate plan (authorized ROE of 9.40%): in the twelve months ended June 30, 2026 — the first six under the new plan — the electric segment earned 9.04% against a prorated authorized rate of 9.33%, meaning it starts below target, and it must be confirmed that it converges without regulatory friction. Financing the capex that nearly doubles by 2030 (~$37,700M cumulative, reaffirmed in the Q2 2026 release): it depends on continued, cost-effective access to debt (~$16,100M planned) and equity (~$5,600M planned) — any deterioration in market conditions or credit rating raises funding costs and dilutes further. And New York's rate framework: the Chapter 58 Law, enacted in May 2026, requires filing an alternative plan with revenue increases capped at the average inflation of the prior three years, orders the return of revenue above the authorized ROE (with retention of up to 0.25 points if certain criteria are met), enables ROE adjustments for affordability performance, and extends to 14 months the authority to suspend a rate case, all for filings made after January 1, 2027 — the company states it is still evaluating the impact.
Educational / informational. Does not constitute investment advice.
Valuation by multiples
The multiple is applied to the metric per share (EPS / Core FFO): that metric already reflects the evolution of the share count (buybacks or issuance), so the share count does not enter as a separate step. The implied equity (~$45.9 bn) is the metric carried to the equivalent of today's share count — the detail is in the piece's (i).
Discounted cash flow to present value (DCF)
Earning power (maintenance owner earnings: NOPAT + D&A − maintenance capex ≈ D&A). Reported FCF is negative (operating cash flow $3,955M − utility construction expenditures $4,817M ≈ −$862M in the twelve months ended June 30, 2026) because growth capex — financed with debt plus equity issuance — expands the regulated rate base at a regulator-set authorized return (9.40%). as the base. Move the assumptions: the value recalculates live. The verdict remains anchored by multiples; the DCF contrasts it at present value.
Risk does not inflate the rate: protection is required separately, as a margin of safety over the value. The floor avoids discounting at the pace of a depressed market rate.
| Year | Projected FCF | Discount factor | Present value |
|---|---|---|---|
| 1 | $2.6 bn | 0.957 | $2.5 bn |
| 2 | $2.8 bn | 0.916 | $2.5 bn |
| 3 | $2.9 bn | 0.876 | $2.6 bn |
| 4 | $3.1 bn | 0.839 | $2.6 bn |
| 5 | $3.3 bn | 0.802 | $2.7 bn |
Reverse DCF — what growth the price discounts
The inverse approach: instead of projecting growth to obtain the value, the market price ($107) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.
The market discounts less growth (4.4%/year) than we project (6.5%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.
That growth implies ~$3 bn of owner earnings in year 5 (vs ~$3.3 bn of our base case). It recalculates if the DCF assumptions are edited.
Year-by-year model — utility (equity)
A regulated utility is valued on P/E over adjusted earnings (equity-level): the value sits in the regulated base (rate base), which grows with capex at an allowed ROE. GAAP can be depressed by the mark-to-market of hedges → the adjusted figure is used. It returns capital via dividend (a dividend aristocrat); it may issue some equity to fund capex. Total return adds the dividend collected along the way. In edit mode, the metric, shares, dividend, and exit multiple can be adjusted.
| US$ bn / per share | TTM | +1a | +2a | +3a | +4a | +5a |
|---|---|---|---|---|---|---|
| Operation (editable: metric, shares) | ||||||
| Utilidad neta atribuible ($bn) | 2.217 | 2.35 | 2.528 | 2.702 | 2.869 | 3.027 |
| growth | — | +6% | +8% | +7% | +6% | +6% |
| ROE ganado (CECONY eléctrico) | 9.0% | 9.2% | 9.3% | 9.3% | 9.3% | 9.3% |
| Rate base CECONY eléctrico ($bn) | 31.5 | 32.9 | 35.1 | 39.2 | 42.7 | 46.5 |
| EPS | $5.99 | $6.18 | $6.49 | $6.77 | $7.04 | $7.29 |
| Shareholder return (dividend + buyback) | ||||||
| Dividend / share | 3.55 | 3.68 | 3.8 | 3.94 | 4.08 | 4.22 |
| Payout (div / metric) | 59% | 59% | 59% | 58% | 58% | 58% |
| Shares (M) | 370 | 379.952 | 389.704 | 398.86 | 407.318 | 415.081 |
| Multiples at today's price (equity, no EV) — how they compress | ||||||
| P/E (price / per share) | 17.9x | 17.3x | 16.5x | 15.8x | 15.2x | 14.7x |
| Value curve (per share × P/E exit multiple by year) | ||||||
| Value / share | — | $111 | $117 | $122 | $123 | $124 |
| Total return vs price | — | (+7%) | (+8%) | (+8%) | (+7%) | (+6%) |
A 100% regulated utility (unlike a hybrid with an unregulated renewables arm) is valued on a P/E basis over attributable net income, with value anchored to the growth of the regulated rate base (rate base × authorized ROE). Rolling grid: the base year is the real TTM — attributable net income of $2,217M in the twelve months ended June 30, 2026, built by levels from the release and the Q2 10-Q ($2,023M for fiscal 2025 plus $1,232M for the first half of 2026 minus $1,038M for the first half of 2025) — and the projection is a series of 12-month windows (+1yr…+5yr). Year 1 is not extrapolated from the trajectory: it is anchored to the guidance the company reaffirmed on August 6, 2026 (adjusted earnings per share of $6.00 to $6.20 for 2026, versus $5.70 in 2025), and the adverse and favorable scenarios anchor at the extremes of that same range. Measured in GAAP earnings, the base-case path starts at +6.0% and not at the ~+12% underlying rate, because the window excludes a non-recurring after-tax gain of $134M from the sale of the Mountain Valley Pipeline stake, which year-0 does carry and which the company itself excludes from its adjusted earnings (Exhibit A of the Q2 release: $189M pretax, $55M tax). From there it decelerates from +7.6% to +5.5% by year 5, with uncertainty from a new rate case starting in 2029 — already under the more demanding framework of the 2026 Chapter 58 Law — weighing on the last two years. CECONY's electric rate base grows from $32,935M in 2026 to $39,174M in 2028 under the plan the NYSPSC approved in January 2026 (authorized ROE of 9.40%, versus 9.25% under the prior plan), and the Q2 release extends the company's forecast to $42,700M in 2029 and $46,543M in 2030. The electric segment's earned ROE starts at 9.04% — the level for the twelve months ended June 30, 2026, with the new plan in effect for only half the period and a prorated authorized rate of 9.33% — and converges toward the authorized rate without exceeding it in the base case. Shares grow ~2-2.7%/year (actual dilution from the equity issuance that finances capex, which nearly doubles by 2030: from $4,996M to $8,588M/year), so EPS grows more slowly than aggregate earnings. The multiple compresses toward 17x.
Today's multiple compresses on its own going forward as the metric per share grows. The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—. Total return adds the dividend collected; the required return is applied to the base scenario.
Scenarios (bear / base / bull) — at 5 years
Value sensitivity
Value per share by growth scenario (rows) and the compression or expansion of the exit multiple (columns). The color shows whether it beats the required return.
| Growth ↓ / Multiple → | Compression−15% | Base multiple | Expansion+15% |
|---|---|---|---|
| BearRegulatory friction in the next rate case under the Chapter 58 Law framework and higher financing costs from accelerated equity dilution. Year 1 anchors at the low end of the reaffirmed guidance (adjusted earnings per share of $6.00) and from there earnings decelerate to +3.0% by year 5 · base ~15×/14× (3y/5y) P/E — compression toward the floor for a regulated utility without a premium | $77 -2.3% | $90 0.6% | $104 3.1% |
| BaseCECONY electric rate base growing ~9%/year (2026-2028 rate plan approved in January 2026; the Q2 release extends the company's forecast to $42 · base ~18x/17x (3yr/5yr) P/E — within the band for a pure regulated utility, compressing from ~18.7x today | $105 3.4% | $124 6.4% · base case | $143 9.2% |
| BullThe reliability plan for New York's capacity shortfall accelerates rate base growth beyond what was planned · base ~20×/19× (3y/5y) P/E | $124 6.4% | $146 9.6% | $168 12.5% |
Multiples — today
High today = growth is being paid for; they cheapen toward 3 and 5 years (see Projections).
Forward multiples
With today's price fixed and the metric growing, what multiple is being paid at 3 and 5 years. Today's high multiple is the price of growth: if the business grows, the entry multiple cheapens on its own.
Optionalities
They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.
The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).
Maximum price to pay today — by required return
Each card fixes a required annual return and answers: if the business is worth $124 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $107, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.
Return and margin of safety calculator
The maximum price to pay today to earn the required return, with the dividend collected as a separate flow. Both controls are editable.
With a target price of $124 in 5 years plus $20 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $117. Against the current market price ($107), the margin of safety is 8.2% (trades below the maximum → there is margin) and the total return at that price would be 6.4% annually.
Valuation quality
- Multiple vs the group. 18× TTM earnings, against a 15-18x band for a pure regulated utility. On the adjusted earnings the company publishes ($5.79 per share in the twelve months through Jun 2026) the multiple is higher. No evident premium or discount.
- Growth vs multiple. The multiple compresses modestly from 18× to 17x as rate base growth decelerates toward the terminal year (post-2028 uncertainty).
- Margin of safety. The base return (+3%/year of price, +6% with the dividend) sits in the modest zone, with neither a relevant margin of safety nor evident overpricing.
ROIC vs the 10% bar — the compounding engine
The quality bar — return bands
The return on capital is judged against absolute bands; the value-creation floor is the market's opportunity cost (~10%). A stock's volatility does not measure business risk.
ROE 9% → below the 10% bar. The bar is a measure of business quality, not the method's discount rate: value is discounted to today at the risk-free rate, and protection is required separately, as a margin of safety.
Owner earnings — the waterfall
It charges maintenance capex (which EBITDA does not deduct). The growth capex ($2.5 bn) is voluntary and is not charged to the base — it depresses FCF today, creates value tomorrow.
Cash & reinvestment
Margins — trajectory
Each margin over sales, year by year: historical (solid line) → projection (dotted).
Owner earnings — the detail
Business quality
- ✕ ROIC exceeds the cost of capital (~10%)
- ✕ High incremental ROIC (compounding)
- ✓ CFROIC backs up the ROIC (100%, cash vs. accruals)
- ✓ Healthy balance sheet (low corporate debt)
- ✓ Durable competitive moat (multiple advantages)
Quality — cash · ROIC · reinvestment
- Regulated return (earned vs authorized ROE). Over the 2023-2025 three-year period, CECONY electric earned an average of ~9.34% (9.46% / 9.21% / 9.36%) against a 9.25% authorized rate. In the twelve months ended June 30, 2026, with the new plan in effect for only half the period, it earned 9.04% against a prorated authorized rate of 9.33% — starting below the 9.40% level the 2026-2028 plan sets, which is normal for the first year of a plan.
- Value creation (authorized ROE vs the 10% bar). Authorized ROE of 9.40%, hovering at the 10% bar (market opportunity cost): the regulated return is fixed by design — value is created by executing the rate base growth ($32.9bn → $39.2bn) at a good cost of financing, not from a wide spread.
- Earnings quality. Reported earnings are clean: the disclosed FY2025 adjustments are minor (~$20M net, <1%) and transparent, with no material GAAP distortions.
Revenue trajectory
Values in US$ bn. The % over each bar is the year-over-year (YoY) growth — each year, historical and projected, vs the prior one (the TTM vs the TTM from a year ago). The path comes from the same source as the table; years without their own series in the model are interpolated between the anchors. Historical solid, projection in a lighter shade.
Where the growth comes from · by segment
Weight in revenue and year-over-year (YoY) growth, in reported USD.
CECONY Electric is the dominant engine (~69% of revenue). Reported revenue growth (FY2025 vs FY2024) largely reflects the pass-through of higher purchased power and fuel costs, not earnings — due to revenue decoupling, the real earnings driver is rate base × authorized ROE (growing ~9%/year under CECONY's current electric plan), not these revenue percentages. Steam and gas are more volatile year to year due to weather.
Growth engine — operating drivers
Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.
Con Edison's real engine is the regulated rate base × the authorized ROE (not revenue, which under revenue decoupling merely passes through energy costs at no margin). CECONY's electric rate base grows ~9%/year under the current rate plan (2026-2028), financed by a capital plan that nearly doubles toward 2030 due to the electric capacity deficit the NYISO identified for New York City. That capex is financed with debt + a material equity issuance that dilutes per-share EPS — the counterpart of rate base growth.
Projections
| Metric | FY23 | FY24 | FY25 | TTM | +1A | +2A | +3a | +4A | +5a |
|---|---|---|---|---|---|---|---|---|---|
Revenue | $14.5 bn | $15.5 bn (+7%) | $17 bn (+10%) | $17.9 bn (+9%) | $19.3 bn (+8%) | $20.8 bn (+8%) | $22.4 bn (+8%) | $23.7 bn (+6%) | $25.1 bn (+6%) |
Operating income | $3.2 bn | $2.7 bn (-16%) | $2.9 bn (+10%) | $3.2 bn | $3.4 bn (+7%) | $3.6 bn (+7%) | $3.9 bn (+7%) | $4.2 bn (+7%) | $4.5 bn (+7%) |
Net income | $2.5 bn | $1.8 bn (-28%) | $2 bn (+11%) | $2.2 bn | $2.4 bn (+7%) | $2.5 bn (+7%) | $2.7 bn (+7%) | $2.9 bn (+6%) | $3 bn (+6%) |
Total capex | $4.5 bn | $4.7 bn (+5%) | $5 bn (+6%) | — | $5.6 bn (+13%) | $6.3 bn (+13%) | $7.2 bn (+13%) | $7.8 bn (+10%) | $8.6 bn (+10%) |
The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).
Growth quality
- Real, not nominal. Real growth lives in the physical rate base (built infrastructure), not in revenue (which passes through energy costs at no margin due to decoupling).
- Growth engine. CECONY electric rate base +~9%/year (current rate plan, actual) + the capital plan that nearly doubles toward 2030 due to New York's electric capacity deficit.
- Sustainability. Growth is well founded through 2028 (approved rate plan). The risk is post-2028: a new rate case might not recognize the same pace of rate base growth.
Moat strength
The business and its moat
The business: a regulated monopoly in electricity, gas and steam
Con Edison earns what the regulator authorizes on invested capital, not a margin on the energy it buys and resells. In each rate plan, the revenue required to provide a return is determined by multiplying the rate base (net plant + working capital + certain regulatory assets, less deferred taxes) by the pre-tax weighted average cost of capital set in the plan; the return on common equity is determined by the regulator (in New York, the NYSPSC weights one-third CAPM and two-thirds a dividend discount model over a group of comparable utilities).
CECONY's and O&R's (New York) electric and gas delivery revenue is subject to revenue decoupling: it does not depend on how much energy is sold but on what the rate plan authorizes — which is why reported revenue (which also includes the pass-through, at no margin, of purchased power costs) is a noisy indicator of true earnings. The gas and steam plans also normalize for weather. CECONY and O&R no longer operate large-scale electric generation (sold in the 1990s restructuring) nor control bulk electric transmission (administered by the NYISO).
Scale and competitive position
CECONY serves ~3.7 million electric customers (all of New York City except part of Queens, and most of Westchester; ~660 square miles, more than 9 million inhabitants — the highest population density served in the sector) and ~1.1 million gas customers; it operates the largest steam distribution system in the United States (~16,975 MMlb/year to ~1,490 customers in Manhattan). O&R (with RECO) serves ~0.3 million electric customers and >0.1 million gas customers across ~1,300 square miles of southeastern New York and northern New Jersey.
The physical assets are enormous and irreplicable: the most extensive underground electric distribution system in the United States (~100,371 underground miles + ~38,219 overhead miles), 63 distribution substations and 40 transmission substations, ~4,374 miles of gas mains. Following the 1990s restructuring, substantially all electric and gas delivery service in New York is provided by five private distributors (Con Edison, National Grid, Avangrid, National Fuel Gas, CH Energy/Fortis) or two state authorities — Con Edison is one of the five, with the highest-density territory in the state.
The moat: regulatory + irreplicable infrastructure
The moat is a regulated territorial monopoly: the NYSPSC does not consider it reasonably likely that another distribution provider would be authorized where CECONY or O&R already operate, and any competitor would need to obtain their consent, meet local requirements, install its own infrastructure from scratch and remain subject to extensive regulation. It is reinforced by network assets that would take decades and enormous capital to replicate, and by revenues protected by decoupling (earnings do not depend on volume sold).
Unlike a hybrid utility with an unregulated renewables arm (which competes for every contract), virtually 100% of Con Edison's business is regulated — including the Con Edison Transmission portion, whose projects (via joint ventures such as New York Transco) carry returns set by agreements with the FERC (9.99%-11.3% depending on the project), not competed in the market.
Direction of the moat and threats
The moat is stable, but faces two opposing pressures. On one hand, distributed generation (solar, fuel cells, batteries) and the electrification of uses currently served by gas or steam (driven by New York's Climate Leadership and Community Protection Act and the city's Climate Mobilization Act) pressure gas and steam volumes over the long term — although decoupling cushions the immediate impact on earnings. On the other hand, NYISO identified an electric capacity shortfall in New York City from summer 2026 through 2030 (notices of deactivation of existing generation plus uncertainty over whether certain planned projects will be completed on time), and the NYSPSC has already ordered CECONY to develop a contingency plan — an investment tailwind (capex nearly doubles by 2030) that is at the same time the disconfirmer: financing it requires continued, cost-effective access to the debt and equity markets, and the resulting rate increases face political affordability pressure in one of the highest cost-of-living markets in the country. That pressure is no longer purely political: the Chapter 58 Law of 2026, enacted in May 2026, wrote it into the rate case procedure for filings made after January 1, 2027.
Business / sector quality
- Relevant in 10 years (recurrence). Electricity, gas and steam are the most recurring demand there is, in a territory of maximum population density. Maximum predictability.
- Pricing power. Set by the regulator (authorized ROE on the rate base) — not market pricing power, but a guaranteed return while executing within the regulatory framework.
- Moat and its direction. A wide moat (regulatory + irreplicable physical infrastructure), stable. No unregulated growth arm adding market risk, unlike a hybrid utility.
- Cyclicality / sensitivity. Barely cyclical (stable regulated demand, decoupled from volume) but sensitive to interest rates (high leverage) and to rate-affordability politics in an extremely high cost-of-living market.
Solvency margin
Each pillar between danger and solid — the further right, the more room.
Reading for a regulated utility: it runs high leverage (5-7×) backed by a rate base that earns an allowed ROE and an investment-grade rating — it is not judged by an industrial company's thresholds. EBIT/interest coverage is thin by design (lots of cheap debt); EBITDA/interest coverage is higher.
Net cash position
In a regulated utility, debt is backed by a rate base that earns an allowed ROE and an investment-grade rating — it is low-cost funding for a regulated-return asset, not a vulnerability. High leverage is structural and healthy.
Debt composition
Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).
Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.
Company health / solvency
- ✓Regulated return (earned vs allowed ROE)Earns 9.0% vs allowed 9.4%
- !Value creation (allowed ROE − 10% bar)-0.6pp
- ✓Leverage (net debt / EBITDA)4.8x · Baa1 / A- / BBB+ (Con Edison, issuer); A3/A-/A- (CECONY); Baa1/A-/A- (O&R)
- ✓Predictability (% regulated + rate-base growth)100% regulated · rate base +$3.1 bn/year
A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.
Health — balance sheet risks
- Leverage (regulated lens). High by design ($27,800M of debt, ~4.8x net debt/EBITDA), but backed by a regulated rate base with investment grade ratings — it is judged against utility thresholds, not corporate solvency.
- Credit quality (investment grade). Con Edison Baa1/A-/BBB+; CECONY A3/A-/A-; O&R Baa1/A-/A- — the debt is backed by the regulated rate base and provides access to reasonably priced credit, the central input of the capital plan.
- Negative cash flow by design. FCF is negative (~−$862M TTM) because capex deploys rate base (which then earns the authorized ROE) — it is regulated investment, not cash-flow stress.
- Financing of the capex plan. The plan (~$37,700M cumulative for 2026-2030) is funded with ~$16,100M of planned debt + ~$5,600M of planned equity; it depends on continuous access to the capital markets and on rates not making funding more expensive.
Who runs it
- Cawley signs the FY2025 10-K as Chairman, President and CEO of Con Edison, and also as Chairman/CEO of CECONY.
- CECONY's 2026-2028 electric rate plan was approved in January 2026 with a higher authorized ROE (9.40% vs 9.25%) — active regulatory execution at a moment of growing capex.
- Capital is deployed almost entirely in the regulated operation: no acquisitions or diversification outside the energy delivery business.
Capital allocation — indicators
The quality test: it reinvests at 3% vs the 10% bar (market opportunity cost) → each $1 retained creates value.
Shares — ownership and dilution
Dilution transfers value from the shareholder to the employee each year — watch that it does not erode value per share.
Management / capital allocation
- Skin in the game. No founder control; insider ownership pending the DEF 14A proxy (could not be anchored in this extraction). Alignment by regulatory design and the dividend, not by concentrated ownership.
- Capital allocation. Deploys nearly all capital into the regulated rate base (authorized return set by the regulator) + the dividend. No M&A or material buybacks — it funds capex with debt + equity issuance, a simple and consistent discipline.
- Integrity / candor. The 10-K discloses the FY2025 adjustments (impairment, transaction costs) and their exact magnitude in detail and with transparency, without hiding them in GAAP.
Why it trades at this price
- There is no clearly identifiable source of discount: it trades at 18× TTM earnings, against a 15-18x band for a pure regulated utility — it is not evidently cheap.
- Recent noise pushes in the opposite direction from a discount: the TTM carries a $134M non-recurring after-tax gain from the sale of the Mountain Valley Pipeline stake, so the multiple on reported earnings is flattered — on the adjusted earnings the company publishes ($5.79 per share in the twelve months through Jun 2026: $5.70 for fiscal 2025 plus $3.00 for the first half of 2026 minus $2.91 for the first half of 2025) the multiple is higher than on reported earnings.
- The price reasonably reflects the quality of the business (a stable regulated monopoly) and the real risk (material dilution from growing capex) — a case of "caution: it may not be cheap, it merely trades in line with its quality" (§9).
No identifiable missing buyers or motivated sellers: the market appears to be pricing correctly a predictable business with a known capital growth plan and equally known dilution. The modest base return (+6% total) is consistent with a low-risk business at no apparent discount, not with an evident value opportunity.
Return asymmetry — risk/reward
The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.
Even in the bear scenario, the return holds at +1%/year (+3% total): the margin of safety protects the downside. The bull (+10%/year, +58% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.
Bear case — disconfirmation
- CECONY's new electric rate plan (9.40% ROE) runs into regulatory friction, or a future rate case cuts the authorized ROE under political affordability pressure in New York — the 2026 Chapter 58 Law already requires filing an alternative plan with revenue increases capped at the average inflation of the prior three years and enables ROE adjustments for affordability performance.
- The capex that nearly doubles toward 2030 requires financing at worse cost (high rates, credit rating under pressure) — equity dilution accelerates beyond plan.
- New York's electric capacity deficit is resolved with third-party projects (transmission, generation) instead of CECONY's own capex, trimming the expected rate base growth.
- Electrification and distributed generation erode gas and steam volumes faster than anticipated, pressuring those segments even with revenue decoupling.
Bull case — the thesis for
- CECONY recovers and sustains the electric plan's authorized ROE of 9.40% (in the twelve months through Jun 2026 it earned 9.04%, with the new plan in effect for only half the period), as it did in the prior three-year period (~9.34% earned against a 9.25% authorized rate), and the steam joint proposal signed in September 2026 (9.5% authorized) closes the gap for the segment furthest from its allowed return.
- New York's electric capacity deficit is resolved with more CECONY-owned rate base than already planned, accelerating earnings growth beyond the base case.
- Data center electricity demand in the New York metropolitan area adds a source of rate base growth not quantified in the standalone base case.
- Capex financing is executed with less dilution than planned (better debt access, lower equity needs), sustaining EPS growth closer to that of aggregate earnings.
Risks — what breaks the base case
- Rate affordability pressure. New York is one of the highest cost-of-living markets in the country; the rate increases that finance reliability capex face political resistance, which could cut a future authorized ROE; the 2026 Chapter 58 Law already wrote that pressure into the rate case procedure for filings made after January 1, 2027.
- Material dilution from equity issuance. ~$5,600M planned for 2026-2030 (in addition to the dividend reinvestment and employee stock purchase plans) dilutes per-share EPS more than at a less capital-intensive utility.
- Financing of growing capex. Capex nearly doubles toward 2030 (~$37,700M cumulative); it depends on continuous, well-priced access to debt and equity — a deterioration in market conditions or the credit rating makes it more expensive.
- Cybersecurity of critical infrastructure. The company acknowledges an elevated risk of cyberattacks (including from state actors) on critical energy infrastructure, with prior incidents already suffered.
- Long-term erosion of gas and steam. Electrification and distributed generation pressure gas and steam volumes over the long term, although revenue decoupling cushions the immediate impact on earnings.
Lenses — the value investing thinkers
Each thinker's analytical framework applied to our data.
The price is attractive, but business quality is not unanimous.
- Buffett / Graham Quality + margin of safety
Fails the quality gate: ROE 9% does not clear the 10% bar (regulated return by design).
- Peter Lynch Growth at a reasonable price (GARP)
A stalwart growing 7% at a PEG of 2.8 → expensive for its growth.
- Joel Greenblatt Cheap and high-return (Magic Formula)
Not applicable — the Magic Formula excludes financials and regulated businesses (EBIT/EV does not capture the operating leverage).
- Howard Marks Perception vs reality + cycle
The price discounts 4% vs our 7%: perception is more pessimistic than reality, with an identified source of the discount.
- Seth Klarman Capital protection (bear scenario)
Bear-scenario floor -3%/yr, bull-scenario ceiling +6%/yr over 5y: reasonable asymmetry, without an ample cushion.
- Pat Dorsey Moat strength (Five Rules)
A wide moat, stable; sources: intangibles, efficient scale, cost advantage, switching costs → passes the Five Rules.
- Aswath Damodaran Expectations implied by the price
Justifying the price requires discounting 4%, within what we project (7%) — the story squares with the numbers.
