Stock Analysis: Edison International (EIX) – Q4 2024

Summary

Edison International (EIX), the parent company of Southern California Edison (SCE), is a major electric utility operating in California. The company reported Q4 2024 earnings amidst heightened regulatory and operational scrutiny due to recent wildfires in its service territory. Despite this, EIX has maintained strong financial performance, meeting or exceeding EPS guidance for the past two decades. The company's core operations focus on wildfire mitigation, grid resiliency, and supporting California's clean energy transition.

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Investment Potential

Short-Term Outlook (2025-2026)

🔴 Risks & Challenges

• Wildfire Liabilities: Pending investigations into the Eaton Fire could result in significant financial liabilities, despite the protections of California’s AB 1054 wildfire fund.
• Regulatory Uncertainty: The CPUC’s decision on the general rate case (GRC) and potential legislative changes to the wildfire liability framework could impact earnings stability.
• Interest Rate & Financing Risks: Rising cost of capital and potential credit rating adjustments could increase borrowing costs.
• Operational Expenses: Increased costs due to wildfire mitigation investments and infrastructure modernization.

🟢 Growth Drivers

• Earnings Growth: Projected 5%-7% EPS CAGR through 2028, with strong execution on regulatory cost recovery and capital deployment.
• Grid Modernization & Expansion: Increased capex for wildfire mitigation and renewable energy infrastructure ($6.4B invested in covered conductors so far).
• Regulatory Stability: Recent approvals for wildfire cost recovery (TKM settlement) and the continued support of AB 1054 bolster financial predictability.
• Dividend Growth: 6.1% increase in dividend, marking the 21st consecutive year of dividend hikes, signaling management confidence.

⚠️ Verdict: Speculative Buy – While earnings guidance is strong, wildfire risks present an overhang on near-term stock performance.

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Long-Term Outlook (2027 & Beyond)

🟢 Long-Term Growth Drivers

• Clean Energy Transition: California's aggressive push for electrification and renewable energy integration presents long-term growth opportunities.
• Resiliency & Infrastructure Investment: Continued modernization of the electric grid and increased undergrounding of power lines to mitigate wildfire risks.
• Regulatory & Legislative Adaptation: Potential enhancements to AB 1054 to strengthen financial protections for utilities against wildfire-related liabilities.

🔴 Long-Term Risks

• Climate Change & Wildfire Exposure: The increasing frequency and severity of wildfires in California pose ongoing operational and financial risks.
• Legislative Uncertainty: Potential changes in liability structure or cost recovery mechanisms could impact future earnings.
• Capital Allocation & Debt Management: Managing capital expenditures while maintaining a healthy balance sheet remains a key challenge.

✅ Verdict: Moderate Buy / Watchlist – Solid long-term growth potential but contingent on regulatory and legislative developments.

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Business Quality

• Moderate Risk: EIX has strong fundamentals but is exposed to significant external risks related to wildfires and regulatory actions.

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Valuation & Intrinsic Value

Key Ratios (FY 2024)

• P/E Ratio: 16.7 (Reasonable for a regulated utility but may reflect risk discount due to wildfire exposure)
• P/B Ratio: 1.4 (Below historical levels, indicating potential undervaluation)
• P/FCF Ratio: Negative due to high capex; needs improvement
• Dividend Yield: ~6% (Attractive yield for income-focused investors)

DCF-Based Intrinsic Value

• Projected Growth Rate: 5%-7% EPS CAGR
• Discount Rate (WACC): ~9% (Reflecting risk factors)
• Terminal Growth Rate: 2.5%
• Estimated Intrinsic Value Per Share: $65-$75 (Stock currently trading at ~$55, suggesting potential upside if risks are managed effectively)

🔹 Conclusion: Fairly Valued with Potential Upside if regulatory and wildfire risks are mitigated.

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Final Investment Assessment

📌 Short-Term (2025-2026): ⚠️ Speculative Buy (High-risk, pending wildfire resolution) 📌 Long-Term (2027+): ✅ Moderate Buy / Watchlist (Strong growth potential but regulatory uncertainty remains)

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Additional Considerations

✅ Sector & Industry Classification: Utilities (Electric) ✅ Macroeconomic Factors: Interest rate impact on financing, climate change policies ✅ Company-Specific Announcements: Wildfire liability investigations, legislative advocacy efforts ✅ Technological Integration: AI-enabled wildfire monitoring, grid modernization investments ✅ Shareholder Returns: 6.1% dividend increase, stable payout history

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Disclaimer

This analysis is for informational purposes only and not financial advice. Conduct independent research before investing.

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