Edison International Earnings: Upside to Core Earnings Growth Going Into 2024

We are reaffirming our $74 fair value estimate for Edison International EIX after management reported $1.38 per share of core earnings during the third quarter of 2023, down from $1.48 in the same quarter last year. Year-to-date earnings are mostly flat from last year and on track to meet our full-year forecast, in line with management’s $4.55-$4.85 EPS guidance. We are reaffirming our narrow moat rating.

We don’t think the quarterly results are representative of Edison’s ongoing earnings growth potential. We expect earnings growth to pick up next year, in line with our 6% annual earnings growth forecast through 2026 and management’s 5%-7% target. Higher financing costs have slowed earnings growth in the last two years, but that should ease in 2024 as it resolves 2017-18 wildfire liabilities, adjusts customer rates to recover investments, and raises its allowed return on equity due to higher interest rates.

We think the market is finally realizing Edison’s long-term growth potential. The stock is up 4% this year, beating the Morningstar US Utilities Index by 20 percentage points. We think the stock still has upside trading at a 15% discount to our fair value estimate with a 4.6% dividend yield. Its 14 P/E is a 15% discount to the sector median P/E.

Edison management reaffirmed their plan to invest more than $7 billion annually on average during the next five years, in line with our estimate. With a constructive outcome of its 2025-28 general rate case filed in May, earnings should approach $7 per share by 2028. Edison’s investments primarily involve electric grid expansion to facilitate California’s clean energy policies.

Edison’s 2017-18 wildfire liability estimate climbed to $9.3 billion from $8.8 billion last quarter with approximately 8% of claims left to resolve. Edison plans to ask regulators for $6.4 billion of rate recovery, but costs to finance these payments likely will drag down earnings for several years before a ruling.