Edison International Stock: Beats Q2 Earnings Estimates (NYSE:EIX)

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I constantly see overvalued stocks in the Utilities sector. This typically tepid growing niche should not command such high earnings multiples (north of, say, 17x). One stock, though, has an attractive valuation, but some idiosyncratic risks.

Forward Operating Earnings Multiple Heat Map

Forward Operating Earnings Multiple Heat Map

Finviz

According to Bank of America Global Research, Edison International (NYSE:EIX) is the parent holding company of Southern California Edison (SCE). SCE is an investor-owned public utility primarily engaged in supplying and delivering electricity in Los Angeles and Southern California. SCE serves over 15 million residents. EIX also holds the Edison Energy subsidiary, which is a non-regulated business that operates across a range of related industries.

The $26 billion market cap California-based Utilities sector stock features a high P/E ratio above 51 using trailing 12-month GAAP earnings, according to The Wall Street Journal. Edison International’s forward operating earnings multiple is just 14, however. The company also pays a hefty 4.1% dividend yield. EIX recently beat earnings estimates, which helped propel shares to multi-month highs.

Analysts at BofA recently downgraded the stock and reduced its forecast for earnings looking out through 2024. The EPS estimates were not drastic, but also not surprising given EIX’s high financing costs surrounding wildfire risks and liability in California. With recent CPUC decisions, shareholders become effectively exposed to wildfire claim debt.

While EIX’s operating earnings multiple is actually quite low vs the sector, its EV/EBITDA is high, and the company’s free cash flow yield is weak.

EIX: Earnings, Valuation, Dividend Forecasts

EIX: Earnings, Valuation, Dividend Forecasts

BofA Global Research

Last Thursday, Edison International posted Q2 EPS of $0.94, topping analysts’ estimates of $0.92. It also handily beat revenue expectations of $3.53 billion, with a whopping $4.01 billion top-line figure. The stock is now up six days in a row, rallying from near $60 to Friday’s close just under $68.

Looking ahead, Wall Street Horizon’s corporate event data shows a November 1 third-quarter earnings date after this weekend’s dividend pay date.

EIX Corporate Event Calendar

EIX Corporate Event Calendar

Wall Street Horizon

The Technical Take

EIX finds itself in a major consolidation period. The stock has seen a series of lower highs and higher lows, forming a triangle pattern. It’s not quite nearing a breakout or breakdown point, but that may come later this year. Right now, a bullish breakout above about $74 would trigger a measured move price objective to near $110 based on the size of the triangle. A bearish breakdown below $57 would trigger a very low, possibly unrealistic, target. I see more immediate support at $58 with next support at the March 2020 low near $44. Another resistance level to the upside is $83. Overall, the long-term trend is up, so this triangle is considered a bullish continuation pattern.

EIX: Bullish Triangle Continuation Pattern. Waiting For The Breakout

EIX: Bullish Triangle Continuation Pattern. Waiting For The Breakout

Stockcharts.com

The Bottom Line

EIX is a rare low-multiple stock in the Utilities sector (when using forward operating earnings). There are risks to this California-based company, though, considering ongoing wildfire danger out west. I like the valuation, but free cash flow is soft. The chart is in no-man’s land currently, but I lean bullish. I say play this one technically, waiting on a breakout or breakdown from the levels mentioned above.

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