Edison International (EIX, Financial) saw a daily gain of 3.19%, with its Earnings Per Share (EPS) standing at 2.19. The question that arises is: Is the stock fairly valued? Let's delve into the valuation analysis to find an answer.
Company Overview of Edison International (EIX, Financial)
Edison International, the parent company of Southern California Edison, is an electric utility that powers 5 million customers across a 50,000-square-mile area of Southern California, excluding Los Angeles. Its subsidiary, Edison Energy, holds interests in non-utility businesses dealing in energy-related products and services. In 2014, Edison International sold its wholesale generation subsidiary, Edison Mission Energy, out of bankruptcy to NRG Energy.
As of July 28, 2023, Edison International (EIX, Financial) is trading at a price of $73.12 per share, with a market cap of $28 billion. The GF Value, an estimation of fair value, stands at $71.59, indicating that the stock is fairly valued.
Understanding the GF Value of Edison International
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor considering the company's past performance and growth, and future business performance estimates. It provides an overview of the fair value at which the stock should ideally be traded.
Edison International (EIX, Financial) appears to be fairly valued based on the GF Value calculation. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Given that Edison International is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
Financial Strength of Edison International
Investing in companies with poor financial strength can lead to a higher risk of permanent capital loss. Therefore, it's crucial to carefully review a company's financial strength before investing. Edison International has a cash-to-debt ratio of 0.02, ranking worse than 90.89% of companies in the Utilities - Regulated industry. GuruFocus ranks Edison International's overall financial strength at 3 out of 10, indicating poor financial strength.
Profitability and Growth of Edison International
Investing in profitable companies, especially those demonstrating consistent profitability over the long term, poses less risk. Edison International has been profitable 9 out of the past 10 years, with a revenue of $17.2 billion over the past twelve months and an operating margin of 11.01%. This ranks worse than 51.7% of companies in the Utilities - Regulated industry. Overall, GuruFocus ranks Edison International's profitability at 7 out of 10, indicating fair profitability.
One crucial factor in a company's valuation is its growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. Edison International's average annual revenue growth is 7.5%, ranking worse than 51.24% of companies in the Utilities - Regulated industry. The 3-year average EBITDA growth is 1.8%, ranking worse than 60.13% of companies in the same industry.
Profitability: ROIC vs WACC
Comparing a company's return on invested capital (ROIC) with its weighted average cost of capital (WACC) can provide insights into its profitability. When the ROIC exceeds the WACC, it implies the company is creating value for shareholders. For the past 12 months, Edison International's ROIC is 2.68 and its WACC is 6.31.
Conclusion
Overall, Edison International (EIX, Financial) stock appears to be fairly valued. The company's financial condition is poor, its profitability is fair, and its growth ranks worse than 60.13% of companies in the Utilities - Regulated industry. To learn more about Edison International stock, you can check out its 30-Year Financials here.
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