Edison International: Southern California Fires Highlight Investment Risks

Key Morningstar Metrics for Edison International

• Fair Value Estimate: $80.00
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Medium

Six named wildfires started burning on Jan. 7-8 in and around highly populated areas of Edison International’s EIX service territory. There are no reports that Edison’s equipment is responsible for the ignitions, but widespread outages and system damage could affect 2025 earnings.

Why it matters: As long as forthcoming investigations find Edison followed fire safety protocols, we expect the utility to substantially recover all fire-related costs and liabilities, either from insurers or through California’s wildfire insurance fund.

• High property values in the area where the fires are burning mean damages could surpass those from other large wildfires in the state during the last decade. Even if Edison has no direct liabilities, the fires could raise insurance premiums.

The bottom line: We are reaffirming our fair value estimate of $80 per share and narrow moat rating. Every $1 billion of direct costs or liabilities would reduce our fair value estimate by about $2 per share.

• The continual threat of large wildfires in California raises more operational and regulatory risk for the state’s investor-owned utilities, supporting our Medium Uncertainty Rating. We assign most US regulated utilities a Low Uncertainty Rating.
• The fires don’t change our 7% annual long-term earnings growth outlook, which is at the high end of management’s 5%-7% target. Our outlook primarily depends on a constructive outcome in Edison’s 2025-28 general rate case.

Big picture: We continue to assume Edison will invest more than $7 billion annually over the next four years, in line with management’s plan. The wildfires could boost support for more safety investments.

• We continue to incorporate a $12 per share reduction in our fair value estimate for liabilities related to the 2017-18 wildfires and other disasters.
• We don’t expect the fires to affect Edison’s dividend, which the board raised for the 21st consecutive year in December. The 6% increase was in line with our expectations.