ConEd to Stay Market Neutral

Stable regulated utility operations, gains from the sale of generation projects, a reasonably strong balance sheet, strong cash flow, regulated rate increases and earnings from non-regulated businesses collectively make Consolidated Edison Inc., a.k.a., ConEd (ED) a conservative income-based investment story.

ED offers an above-industry average dividend yield, competitive with Treasury yields. However, the issues of future electricity sales growth, rising cost structure and increasing capital expenditure continue to restrain valuation. Accordingly, with a mixed outlook, we maintain our market-neutral Hold recommendation on ED common stock with a six-month target price of $42.50.

Price appreciation to our near-term valuation target, coupled with the recently increased $0.585 per share quarterly dividend which appears sustainable assuming modest projected EPS growth represents annualized total return potential of 10.7%.

In May 2008, Consolidated Edison Company of New York filed a request with the New York State Public Service Commission (PSC) for a three-year electric rate plan with rate increases of $556.7 million annually, effective April 2009, 2010 and 2011. This filing reflects a 10.0% return on common equity and a common equity ratio of 48.0%.

Also, in June 2008, Con Edison of New York requested PSC approval for steam rate increases of $43.7 million effective October 1, 2008 and 2009. The proposal has an annual return on common equity 9.3%. Financially, in January 2008, the company increased its quarterly dividend by $0.005 per share, which equates to an indicated annual rate of $2.34 per share.

Williams E&P Growth Attractive

Williams Companies, Inc.?s (WMB) strong second-quarter results were driven by production gains as well as sharply higher gas prices and strong natural gas liquids (NGL) margins. The company?s exploration and production (E&P) profits more than doubled, on the back of a 23% jump in volumes and 50% higher realized prices.

Additionally, the company raised its earnings outlook for the rest of 2008 and 2009, citing production growth. We continue to like the company for the attractive growth opportunities in its low-risk E&P business, besides the strong leverage to continued strength in natural gas liquids margins in its Midstream business.

Williams reported significantly better-than-expected second-quarter 2008 recurring earnings of $406 million or $0.68 per diluted share (our estimate was $0.48 per diluted share), compared to $341 million or $0.57 per diluted share in the previous quarter and $264 million or $0.43 per diluted share in the year-earlier period.

We have increased our 2008 and 2009 earnings estimates on the back of continued improvement in NGL margins in the Midstream segment and strong gas prices. Our new full-year 2008 and 2009 EPS estimates are $2.68 and $2.75, up from $2.03 and $2.18 before, respectively.

During the third quarter of 2007, the company?s Board of Directors authorized the repurchase of up to $1 billion of the company?s common stock with no expiration date. As of July 16, the company has completed the program by repurchasing approximately 28.8 million shares for approximately $1 billion.

DELL Recovery Appears Underway

Recent industry data indicates that Dell, Inc. (DELL) has been successfully executing its five growth priorities. Dell?s direct sales model and efficient supply chain process have helped entrench the company as a cost leader, enabling it to offer attractive pricing relative to its competitors. As the U.S. PC market matures, the company is now focused on gaining share in the fragmented international markets and new domestic markets.

The company expects to achieve annualized cost savings of approximately $3.0 billion by 2011 from its global operations, and will use these benefits to strengthen its competitive position and improve profitability. However, relative to IBM (IBM) and Hewlett-Packard (HPQ), Dell has a high multiple and much greater exposure to the domestic U.S. market. We would therefore still prefer to own HP or IBM over Dell shares.

Dell is currently trading at 15.8x our FY2009 EPS estimate of $1.58, in line with the industry median and a premium to HP and IBM. With improved Q109 results, including better than expected top-line growth and good progress on cost reduction initiatives, it appears that a recovery is under way at Dell.

However, given the stock?s multiple relative to IBM and HP, we believe higher expectations are already bake into the price. We maintain a Hold rating on DELL shares and set a six-month price target of $26.00. Our six-month target price of $26.00 represents a multiple of 16.5x fiscal 2009 EPS estimate, above HP and IBM.

Tech Data Estimates Lowered

We are lowering our estimates for Tech Data Corp. (TECD) ahead of its second quarter report, which is scheduled for August 21. Tech Data previously issued sales guidance of $6.0-$6.2 billion.

Tech Data?s solid sales growth continued cost-cutting efforts, and a healthy balance sheet form the company?s bullish case. We believe that Tech Data will grow its sales by 10.5% in fiscal 2009 and 5.0% in fiscal 2010. Moreover, the company is also focused on improving its profit margins.