Edison International Shares Are Moving Higher Wednesday: What's Driving The Action?

Edison International EIX shares are trading higher Wednesday after Ladenburg Thalmann upgraded the stock from Sell to Neutral.

What Happened: Ladenburg Thalmann analyst Paul Fremont upgraded Edison to a Neutral rating and set a price target of $56.50 on Wednesday. With the stock down approximately 20% over the past month, Fremont believes the company’s valuation is more in line with downside risks.

“With Edison trading at a 34% P/E discount we believe the stock reflects reasonable worst-case outcomes associated with the current California wildfires,” Fremont said in a new note to clients.

Uncertainty surrounding the wildfires in California have weighed on Edison shares in recent weeks. The company’s subsidiary Southern California Edison provides power to the areas surrounding Los Angeles.

Despite upgrading the stock, the Ladenburg Thalmann analyst lowered earnings estimates through 2027 to reflect the downside risk associated with reasonable worst-case outcomes.

Negative outcomes for Edison include the potential for politicians to choose to use the California Wildfire Insurance Fund to cover claims, leaving utility companies vulnerable to another fire, as well as a potential determination that Southern California Edison equipment was involved in starting the fires. Fremont noted that a prudent determination could take up to 10 years.

See Also: Gavin Newsom’s Crisis Management, Climate Change Impact On California Wildfires Covered In New Poll: What Americans Are Saying

A lawsuit on behalf of property owners was reportedly filed against Southern California Edison alleging that witnesses saw flames below an Edison electrical line after a power interruption on Jan. 7.

Edison has filed an Electric Safety Incident Report indicating that it did not observe any interruption in power in its lines that would suggest its equipment was involved in starting the fires. Fremont doesn’t expect the final report to be available until the summer.

“Using a sum of the parts valuation approach we arrive at a price target of $56.50. Based on yesterday's closing price of $58.43 this represents a price depreciation potential of 3.3% and total return potential of 2.4% including a current dividend yield of 5.7%,” the Ladenburg Thalmann analyst said.

EIX Price Action: Edison International shares were up 5.47% at $61.62 at the time of publication, according to Benzinga Pro.

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