Balanced View on Edison International - Analyst Blog

On March 31, 2014, we issued an updated research report on Edison International EIX. For the last four quarters the utility came out with higher-than-expected earnings, with an average surprise of approximately 1.13%.

Based in Rosemead, CA, Edison International engages in the supply of electric energy in central, coastal and southern California. With its strong portfolio of regulated utility assets and well-managed merchant energy operations, Edison International presents a lower risk profile compared to its utility-only peers.

The company's prime unit – Southern California Edison (SCE) – is an investor-owned public utility that operates in a supportive regulatory environment. The company is also implementing infrastructure improvement programs, focusing mainly on system reliability, smart grid technology and compliance with California's renewable energy mandate through programs like SmartConnect and Solar Photovoltaic Program.

Importantly, Edison International settled with California consumer advocates on all issues relating to the early retirement of SCE's San Onofre nuclear generating station. Upon successful approval from California Public Utilities Commission (CPUC), the utility's only regulatory overhang will be SCE's pending general rate case GRC.

Last year, Edison International made significant investments in distribution infrastructure replacement and improvement programs. Through 2017, SCE continues to target 7%–9% average annual rate base and earnings growth driven by infrastructure investment.

In order to keep a balance between reliability, policy goals and affordable customer rate, the company continues to engage in infrastructure improvement activities. Moreover, it continues to optimize its cost structure, strive for operational excellence and create the foundation for an improved SCE cost structure.

However, Edison International generates more than 80% of its revenues from its regulated utility assets. This makes the performance of the company dependent upon approvals of regulatory bodies like CPUC and Federal Energy Regulatory Commission. Any adverse decision regarding any GRC will greatly affect the utility's earnings growth.

Edison International presently retains a Zacks Rank #2 (Buy). Stocks that are also worth considering in the space are Zacks Ranked #1 (Strong Buy) Black Hills Corp. BKH, CPFL Energia S.A. CPL and Otter Tail Corp. OTTR.