Why could rising interest rates lift earnings?

  • ConEd subsidiary CECONY currently has a return on equity of 9.4% and has agreed to maintain the existing arrangement for a multiyear period. When that arrangement ends in about two years, the return will be reset through formula-based negotiations.
  • Citi notes that higher interest rates and lower peer share prices increase the return produced by the formula. Its updated calculation yields approximately 9.7%, about 0.3 percentage points above the current level, which could add approximately 3% to earnings per share growth.

What are the timing and parameter conditions for the return reset?

  • Changes in interest rates feed into the return formula with a lag, and the reset must also await the end of the existing arrangement and subsequent negotiations. The current estimate therefore points to an opportunity in the next return reset.
  • Citi’s calculation relies on assumptions about peers’ future share counts, beta coefficients and financial forecasts, among other factors. These parameters may change before the final record is established. Considering this mechanism, Citi sees upside to the company’s earnings outlook relative to its existing financial plan.

Beyond the defensive premium, what supports and constrains the share price?

  • Amid uncertainty around interest rates, AI data centers and politics, ConEd has continued to play its historical role as a defensive stock. Citi notes that during uncertain periods the stock has historically traded at a 10%–15% premium to peers; given the earnings growth opportunity, the bank believes upside need not stop at that premium.
  • Citi has a buy rating and a price target of 130 dollars per share, based on a 2026 price-to-earnings multiple of 21. Relative to the closing price of 115.74 dollars on 23 October 2026, that implies an expected share price return of 12.3%; adding the expected dividend yield of 3.1% brings the total return to 15.4%.
  • A return below Citi’s estimate could weigh on earnings and the achievement of the price target; additional share issuance or higher-than-expected debt costs could also depress earnings. Conversely, stronger cash flow could reduce the need for debt or equity financing.