Edison International’s Growth Outlook on Track

We are reaffirming our $73 fair value estimate for Edison International EIX after management reported $4.63 per share of core earnings in 2022, in line with our estimate and management’s guidance range. We are reaffirming our narrow moat and stable moat trend ratings.

Edison now trades at just a 9% discount to our fair value estimate after its 20% rally since October, double the return of the Morningstar U.S. Utilities index. We still think Edison offers a favorable total return option for investors given its 4.5% dividend yield and our 7% annual earnings growth estimate. We think there could be additional upside in the stock if its valuation discount to peers closes. Edison trades at a P/E of 14 compared with a P/E of 19 for the utilities sector.

Management reaffirmed their 5%-7% annual earnings growth outlook through 2025, but we think Edison will hit the high end of that as it resolves several key regulatory uncertainties. Our 2025 EPS estimate is at the high end of management’s $5.50-$5.90 guidance range.

Edison’s underlying growth driver is its $6 billion annual capital investment plan, in line with our forecast. This implies 8% annual rate base growth, one of the highest growth rates in the sector. We think Edison can maintain this growth at least through 2035 as California implements electrification policies to reach net-zero carbon emissions by 2045.

Earnings growth will be slower than rate base growth primarily due to financing costs while Edison works through several regulatory proceedings and finances its growth investments. We’re incorporating those costs and now expect only slight earnings growth in 2023, in line with management’s $4.55-$4.85 EPS guidance.

Edison could unlock an additional $0.44 per share of earnings by 2025 if regulators allow it to recover a portion of the $9 billion of liabilities related to 2017-18 wildfires and other disasters. Management said they expect to request $2 billion later this year and likely more in 2024.