On Friday, UBS made a strategic adjustment to its stance on Edison International (NYSE:EIX) stock, downgrading from Buy to Neutral. The firm also lowered its price target slightly to $82 from the previous $83.
The revision reflects concerns over the increased risk aversion among investors due to the frequency of wildfires in California this year, coupled with Edison International's below-average earnings per share (EPS) growth.
The downgrade comes amid investor worries about the financial implications of wildfires. Despite Edison International's efforts to reduce the occurrence and damage of wildfires, the perception of risk remains high among investors.
UBS has adjusted its valuation to include an 11% discount, increased from the previous 7%, which aligns with the firm's assumptions for Pacific Gas and Electric Company (PCG) in terms of maximum financial exposure and legacy claims resolution cost.
Edison International's earnings outlook is also under scrutiny, with a potential negative revision on the horizon. UBS's EPS estimates for the years 2025 and 2026 are $5.50 and $5.78, respectively, which fall short of the Factset consensus of $5.64 and $5.99. The discrepancy is attributed to the higher cost of financing for legacy wildfire claims that have already been paid out.
The possibility of a settlement in the claims recovery proceeding in the coming months could provide some relief. If Edison International manages to recover 50%-75% of the requested claims, this could add between $0.10 and $0.15 per share and increase the company's value by $1.40 to $2.10 per share, assuming a 14x valuation multiple. Nevertheless, the current forecasts and investor sentiment have prompted UBS to adopt a more cautious perspective on the stock.
In other recent news, Edison International has demonstrated a strong financial performance with a stable core earnings per share (EPS) of $1.13 for the first quarter of 2024, aligning with the company's previously stated guidance.
The company also reaffirmed its 2024 core EPS guidance of $4.70 to $5.05. Furthermore, Edison International's board of directors declared a quarterly dividend of $0.78 per share, showcasing its commitment to returning value to shareholders.
Analyst firms Argus and Wells Fargo (NYSE:WFC) have both expressed positive outlooks for Edison International. Argus raised its price target from $78.00 to $82.00, maintaining a Buy rating, while Wells Fargo upgraded the stock from Equal Weight to Overweight and increased the price target to $86.00. These adjustments reflect expectations of an improving sector and favorable outcomes from the company's ongoing regulatory proceedings.
Recent developments also highlight Edison International's leadership in renewable energy and its robust balance sheet. With California's high electric vehicle sales, increased demand for electricity is anticipated, positioning Edison well for future growth. These are some of the recent developments shaping the trajectory of Edison International.
InvestingPro Insights
Following UBS's recent downgrade of Edison International (NYSE:EIX), a closer look at the company's financials through InvestingPro data reveals a mixed picture. With a market capitalization of $28.89 billion and a P/E ratio sitting at 33.13, the company appears to be trading at a premium based on its earnings. However, when considering the last twelve months as of Q1 2024, the adjusted P/E ratio is more favorable at 14.01, suggesting a potential undervaluation if the company's earnings were to align with historical averages.
InvestingPro Tips indicate that Edison International has a track record of raising its dividend, doing so for 18 consecutive years, which could be a positive sign for income-focused investors. Additionally, the company has been able to maintain dividend payments for 21 years in a row, with a dividend yield of 4.16% as of the latest data. These aspects could be particularly appealing for those seeking steady returns in a volatile market.
For investors looking to delve deeper into Edison International's performance and future prospects, there are additional InvestingPro Tips available that shed light on the company's debt, earnings revisions, and trading patterns. To access these insights and make more informed investment decisions, consider using the promo code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription. With 7 more tips available on InvestingPro, investors can gain a comprehensive understanding of the company's financial health and market position.
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