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A Look At The Intrinsic Value Of Consolidated Edison, Inc. (NYSE:ED)

Simply Wall St · 5d ago

Key Insights

  • Consolidated Edison's estimated fair value is US$99.72 based on Dividend Discount Model
  • Current share price of US$99.32 suggests Consolidated Edison is potentially trading close to its fair value
  • Our fair value estimate is 3.6% lower than Consolidated Edison's analyst price target of US$103

In this article we are going to estimate the intrinsic value of Consolidated Edison, Inc. (NYSE:ED) by estimating the company's future cash flows and discounting them to their present value. One way to achieve this is by employing the Discounted Cash Flow (DCF) model. Don't get put off by the jargon, the math behind it is actually quite straightforward.

Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation. For those who are keen learners of equity analysis, the Simply Wall St analysis model here may be something of interest to you.

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Crunching The Numbers

We have to calculate the value of Consolidated Edison slightly differently to other stocks because it is a integrated utilities company. Instead of using free cash flows, which are hard to estimate and often not reported by analysts in this industry, dividends per share (DPS) payments are used. Unless a company pays out the majority of its FCF as a dividend, this method will typically underestimate the value of the stock. We use the Gordon Growth Model, which assumes dividend will grow into perpetuity at a rate that can be sustained. For a number of reasons a very conservative growth rate is used that cannot exceed that of a company's Gross Domestic Product (GDP). In this case we used the 5-year average of the 10-year government bond yield (3.3%). The expected dividend per share is then discounted to today's value at a cost of equity of 7.0%. Relative to the current share price of US$99.3, the company appears about fair value at a 0.4% discount to where the stock price trades currently. Remember though, that this is just an approximate valuation, and like any complex formula - garbage in, garbage out.

Value Per Share = Expected Dividend Per Share / (Discount Rate - Perpetual Growth Rate)

= US$3.7 / (7.0% – 3.3%)

= US$99.7

dcf
NYSE:ED Discounted Cash Flow January 7th 2026

Important Assumptions

The calculation above is very dependent on two assumptions. The first is the discount rate and the other is the cash flows. If you don't agree with these result, have a go at the calculation yourself and play with the assumptions. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at Consolidated Edison as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 7.0%, which is based on a levered beta of 0.800. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business.

Check out our latest analysis for Consolidated Edison

SWOT Analysis for Consolidated Edison

Strength
  • Earnings growth over the past year exceeded the industry.
Weakness
  • Earnings growth over the past year is below its 5-year average.
  • Interest payments on debt are not well covered.
  • Dividend is low compared to the top 25% of dividend payers in the Integrated Utilities market.
Opportunity
  • Annual earnings are forecast to grow for the next 4 years.
  • Good value based on P/E ratio and estimated fair value.
Threat
  • Debt is not well covered by operating cash flow.
  • Paying a dividend but company has no free cash flows.
  • Annual earnings are forecast to grow slower than the American market.

Looking Ahead:

Valuation is only one side of the coin in terms of building your investment thesis, and it ideally won't be the sole piece of analysis you scrutinize for a company. DCF models are not the be-all and end-all of investment valuation. Preferably you'd apply different cases and assumptions and see how they would impact the company's valuation. For example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation. For Consolidated Edison, we've put together three essential factors you should further research:

  1. Risks: As an example, we've found 2 warning signs for Consolidated Edison (1 can't be ignored!) that you need to consider before investing here.
  2. Management:Have insiders been ramping up their shares to take advantage of the market's sentiment for ED's future outlook? Check out our management and board analysis with insights on CEO compensation and governance factors.
  3. Other High Quality Alternatives: Do you like a good all-rounder? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!

PS. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the NYSE every day. If you want to find the calculation for other stocks just search here.