Edison International: Regulatory Proceedings Offer Potential Upside

We are reaffirming our $74 fair value estimate for Edison International EIX after the company announced it had filed a request with California regulators to recover $2.4 billion of costs from mudslides and fires in 2017-18. We are reaffirming our narrow moat rating.

Any cost recovery from the disasters represents incremental value for shareholders and would reduce financing costs, which have been a drag on earnings. In total, we expect Edison will ask regulators to raise customer rates to recover as much as $6 billion of the $8.8 billion estimated costs and liabilities from the 2017-18 disasters. We don’t expect a decision on this first rate filing from regulators until mid-2025, with subsequent decisions in 2026 and beyond.

We assume regulators will approve $2 billion of the $6 billion we expect Edison will request, representing about $3.50 per share of value that we already incorporated in our fair value estimate on a time-value-adjusted, aftertax basis. In total, our fair value estimate includes a $14 per share net deduction for the 2017-18 disasters after incorporating benefits from rate recoveries, insurance recoveries, and tax writeoffs.

We estimate every additional $1 billion of rate recovery that regulators approve represents about $1.75 per share of incremental value, or 2.5% upside based on the current stock price.

Edison’s stock trades at 16 times our 2023 earnings estimate—nearly in line with peer valuations—after climbing 12% this year, one of the best performances in the sector. We think the market is pricing in 2017-18 disaster cost recovery amounts in line with our estimate.

We continue to forecast 6% annual earnings growth, in line with management’s 5%-7% target, and 2025 normalized earnings at the high end of management’s $5.50-$5.90 guidance range. Our forecast includes $6 billion of annual investment during the next five years and a constructive outcome in the 2025-28 general rate case that it filed in May.