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On Tuesday, UBS analyst Gregg Orrill upgraded Edison International shares, listed on the New York Stock Exchange (NYSE:EIX), from Neutral to Buy, while also lowering the price target from $69.00 to $65.00. The upgrade comes as the stock trades near its 52-week low of $49.06, with InvestingPro analysis indicating the stock is currently undervalued. Orrill's assessment suggests that the stock has undergone a significant re-rating, now trading at a 52% discount to its projected 2027 price-to-earnings ratio, following the Eaton (NYSE:ETN) fire incident.
Orrill notes that the primary concern for investors is the potential impact of future wildfires, rather than the Eaton fire itself. The California wildfire fund, which amounts to $21 billion, is considered sufficient to cover the damages from the Eaton fire. Despite recent challenges, the company maintains a solid dividend yield of 6.61% and has maintained dividend payments for 22 consecutive years, according to InvestingPro data. The stock's current price incorporates the worst-case scenario of a $3.9 billion liability for repayment to the fund and a CFO/debt ratio below 13%, compared to Orrill's base case assumption of up to a $1 billion exposure from the Eaton fire.
The analyst anticipates a positive shift in the calendar of events that could contribute to a re-rating of Edison International's stock. Orrill's new price target of $65.00 is based on a 30% discount to the stock's average price-to-earnings ratio since early 2017, a figure that is one standard deviation below the mean.
Supporting this analysis, Orrill has developed seven valuation scenarios and three financial shock scenarios. These consider various outcomes, including the repayment of the wildfire fund, a significant fire occurring without the availability of the fund, and the utility's potential replenishment of the wildfire fund. These scenarios aim to provide a comprehensive view of Edison International's financial resilience in the face of such unpredictable events.
In other recent news, Edison International has reported significant changes within its executive team, with the retirement of Adam S. Umanoff, the company's Executive Vice President, General Counsel, and Corporate Secretary. Chonda J. Nwamu has been elected as his successor, effective April 9, 2025. Concurrently, the company is investigating the potential involvement of its equipment in the recent Eaton and Hurst wildfires in California.
Analyst firm Jefferies has reduced its price target for Edison International to $69 from $93, maintaining a Buy rating despite the ongoing wildfire investigations. In contrast, Evercore ISI has reaffirmed its positive stance on the company, maintaining an Outperform rating and a $77.00 price target.
S&P Global Ratings has revised the company's credit rating outlook to negative due to potential risks associated with the California wildfire fund's depletion. The firm noted that the potential liabilities related to the Eaton fire could be substantial, especially if Edison's equipment is found to have contributed to the wildfire. These are recent developments that investors should be aware of.
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