On Friday, Edison International (NYSE:EIX) shares were downgraded by Ladenburg Thalmann from Neutral to Sell. The firm also reduced the price target on the stock to $73.50, a decrease from the previous target of $87.00. The revision was prompted by concerns regarding the company's prospects for achieving its long-term earnings per share (EPS) growth target of 5%-7%.
Ladenburg Thalmann expressed doubts about Edison International's ability to meet its financial goals. The analyst noted that the company's earnings expectations for 2025 now include an increased contribution from operational variances, which have risen by $0.20 since the second quarter of 2024 and by $0.55-$0.65 from the fourth quarter of 2021, when Edison International first provided its 2025 guidance.
The downgrade reflects a stark contrast in the company's strategy, which relies on earning above its authorized return on equity, compared to recent Administrative Law Judge (ALJ) recommendations. These recommendations emphasize customer affordability, a factor that has been highlighted in the context of other utilities, such as the Sempra subsidiary, San Diego Gas & Electric Company (SRE).
The report also pointed out that Edison International's stock is trading near historical highs. It is currently at a 13% two-year forward price-to-earnings (P/E) discount, relative to its average historical discount of 25% over the past five years. This valuation metric suggests that the stock may be overvalued compared to its historical trading range.
In other recent news, Edison International reported a core earnings per share (EPS) of $1.51 for the third quarter of 2024, with a year-to-date EPS of $3.88. The company has revised its 2024 core EPS guidance to a range of $4.80 to $5.00. Significant progress in regulatory proceedings and a commitment to achieving net zero greenhouse gas emissions by 2045 were also highlighted.
Recent developments include a recovery of approximately $4.5 billion since 2021 and plans for a $1.6 billion securitization after the TKM settlement agreement. Edison International also anticipates electric rates to align with local inflation from 2024 to 2028 and a decrease in the total energy bill for customers by 2045.
The company's future expectations include upcoming ERP and AMI filings projected within the next 6 to 12 months. Edison International also sees growth in smaller data centers in California, particularly in AI-related applications. The timeline for the Woolsey case suggests a potential settlement discussion in about 18 months.
InvestingPro Insights
Adding to Ladenburg Thalmann's analysis, recent InvestingPro data provides further context on Edison International's financial position. The company's P/E ratio stands at 24.36, which aligns with the analyst's observation of the stock trading near historical highs. This valuation metric is particularly relevant given the InvestingPro Tip that EIX is "Trading at a high P/E ratio relative to near-term earnings growth," with a PEG ratio of 3.68 for the last twelve months as of Q3 2024.
Despite the downgrade, it's worth noting that Edison International has demonstrated consistent shareholder returns. An InvestingPro Tip highlights that the company "Has raised its dividend for 18 consecutive years," which may appeal to income-focused investors. The current dividend yield is 3.79%, and the company has shown a dividend growth of 5.76% over the last twelve months.
For investors seeking a more comprehensive analysis, InvestingPro offers 9 additional tips on Edison International, providing a deeper understanding of the company's financial health and market position.
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