Edison International (EIX): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

Summary:
We maintain our Neutral recommendation on Edison International based on the inherent business strength of its regulated utility Southern California Edison (SCE), partly tempered by low hedging exposure and regulatory risks. SCE's decision to permanently shut down Units 2 and 3 of SONGS in California has been considered the most significant in the last five decades in the U.S. The nuclear industry witnessed a difficult time in 2013 given the availability of low-priced natural gas and the government-subsidized wind sector. Hence, an amicable settlement of costs and liabilities for SONGS will lift a major overhang on the stock. With its strong portfolio of regulated utility assets, well-managed merchant energy operations, steady growth in rate base, successful acquisition, focus on cost efficiency and fine dividend yield, Edison International presents a lower risk profile compared to its utility-only peers.

Overview:

California-based Edison International EIX is the parent holding company of Southern California Edison (SCE). Edison International is also the parent company of subsidiaries that are engaged in competitive businesses related to the delivery or use of electricity.

SCE is an investor-owned public utility primarily engaged in the business of supplying electricity to an approximately 50,000 square-mile area of southern California. The SCE service territory contains a population of approximately 14 million people and SCE serves the population through approximately 5 million customer accounts. In 2013, SCE's total operating revenue was derived mainly from commercial (41.6%), residential (40.2%), agricultural and other (7%) industrial (5.5%), public authorities (5.1%) and resale sales (0.6%) customers.

Prior to Dec 17, 2012, Edison International had a competitive power generation segment (EMG), the majority of which consisted of its indirectly, wholly-owned subsidiary, Edison Mission Energy or EME. EME is a holding company with subsidiaries and affiliates engaged in the business of developing, acquiring, owning or leasing, operating and selling energy and capacity from independent power production facilities.

In Dec 2012, EME and certain of its wholly-owned subsidiaries filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division. As a result of the bankruptcy filing, Edison International determined that it no longer retains significant influence over EME. Therefore, EME's results of operations are no longer consolidated with those of Edison International. On Mar 11, 2014, EME received the go-ahead from the U.S. Bankruptcy Judge Jacqueline Cox in Chicago for the proposed asset sale plan to New Jersey-based NRG Energy Inc.


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