Edison International
EIX Details
Edison International (NYSE: EIX) is the parent holding company of SCE and Edison Energy Group. SCE is a public utility primarily engaged in supplying and delivering electricity to southern California. Edison Energy Group is a holding company for Edison Energy that provides data-driven energy solutions to commercial, institutional, and industrial customers.
Results Performance for the Third Quarter Ended 30 September 2021 (Q3FY21)
- The net loss stood at $341 million ($0.90 per share) in Q3FY21 versus $288 million ($0.76 per share) in Q3FY20.
- The adjusted core earnings stood at $644 million ($1.69 per share) in Q3FY21 versus $632 million ($1.67 per share) in Q3FY20.
- Southern California Edison’s (SCE) reported an increase in core earnings per share in Q3FY21 on YoY mainly due to increased revenue from the 2021 General Rate Case (GRC) final decision and increased Federal Energy Regulatory Commission revenue.
- SCE's non-core loss in Q3FY21 was mainly attributable to a pre-tax charge of $1.2 billion recorded for 2017/2018 Wildfire/Mudslide Events claims and expenses, net of anticipated recoveries from FERC customers.
Source: Company Reports, Analysis by Kalkine Group
Key Update
- On 4 November 2021, the company announced the pricing of 750 thousand shares of its 5.00% Series B Fixed-Rate Reset Cumulative Perpetual Preferred Stock. The transaction is anticipated to close on 12 November 2021 and will result in net proceeds of ~$742 million.
Outlook
As per the management, SCE extends to make good progress in executing its Wildfire Mitigation Plan and installing 2,500 miles of conductor to date. These developments combined with the PSPS Action Plan reinforces SCE’s overall risk profile concerning wildfires. Combining physical mitigation measures, operational practices, and the use of PSPS, SCE anticipates that it has decreased the probability of losses from catastrophic wildfires by 55 to 65%, relative to pre-2018 levels. In addition, looking ahead to summer 2022, SCE’s newly announced 535 MW utility-owned storage investment will add capacity to mitigate the risk of state-wide customer outages due to extreme weather events and continued drought conditions.
Key Risks
The group’s businesses are exposed to regulatory risk, including changes in the regulatory environment or an adverse outcome in regulatory proceedings that would hurt the financial condition and results. Further, SCE and its customers are exposed to the risk of price fluctuation of natural gas, electric power, and transmission congestion.
Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)
Stock Recommendation
The company has delivered a 6-month and 1-year return of ~+17.87% and ~+5.35%, respectively. In addition, the stock is trading above the average of the 52-week high price of $66.21 and the 52-week low price of $53.92.
The stock has been valued using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price that reflects a low double-digit decline (in percentage terms). The company might trade at a slight discount to its peers’ average, considering a negative ROE and higher debt to equity of 2.00x in Q3FY21 versus the industry median of 1.12x.
Considering the factors above, the current trading levels, and the associated business risks, we advise the investors to book profits. Accordingly, we give a “Sell” rating on the stock at the closing market price of $66.15 per share, as of 24th November 2021.
Technical Overview:
Daily Price Chart
Source: REFINITIV, Note: Purple color line reflects Relative Strength Index (14-Period)
Note 1: The reference data in this report has been partly sourced from REFINITIV.
Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.
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