Edison International (EIX, Financial) has recently shown a daily gain of 3.11%, alongside a three-month gain of 10.1%. With an Earnings Per Share (EPS) of $3.21, investors are keen to understand whether the stock is fairly valued. This article aims to delve into the valuation of Edison International (EIX) and provide a thorough analysis to answer this pivotal question.
As we unpack the details of Edison International's current market position and financial health, we encourage readers to explore the following in-depth analysis to gain a clearer picture of the company's true worth.
Company Introduction
Edison International is the holding company for Southern California Edison, an electric utility serving 5 million customers in Southern California. The company also operates Edison Energy, a business focused on energy-related products and services. Following the sale of its wholesale generation subsidiary, Edison Mission Energy, to NRG Energy in 2014, Edison International has continued to evolve and grow. A key point of interest for investors is how the current stock price of $71.64 compares to the estimated Fair Value (GF Value) of $70.71, which suggests the stock may be trading at a fair market value.
Understanding the GF Value
The GF Value is a unique measure of intrinsic value, incorporating historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. Edison International's stock is considered fairly valued according to this metric. The GF Value Line, which investors can view on our summary page, indicates the ideal trading value of the stock.
When the stock price significantly exceeds the GF Value Line, it may suggest an overvaluation, hinting at potentially lower future returns. Conversely, a price well below the GF Value Line could indicate undervaluation and the possibility of higher future returns. With Edison International's stock price hovering around the GF Value estimate, the expectation is that the stock's long-term return will be in line with the company's business growth.
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Financial Strength
Investors must be wary of companies with poor financial strength as they pose a higher risk of capital loss. Key indicators like the cash-to-debt ratio and interest coverage can shed light on a company's financial robustness. Edison International's cash-to-debt ratio stands at 0.01, ranking lower than 96.06% of its peers in the Utilities - Regulated industry, pointing to a less favorable financial position.
Profitability and Growth
Investing in consistently profitable companies is generally less risky. Edison International, with a history of profitability over the past decade, presents a compelling case. The company boasts a revenue of $16.60 billion and an Earnings Per Share (EPS) of $3.21, with an operating margin of 15.55%, indicating fair profitability.
Growth is a vital indicator of a company's valuation. Edison International's 3-year average annual revenue growth is 7.5%, although its EBITDA growth rate lags behind industry averages. This mixed growth performance suggests room for improvement when compared to industry peers.
ROIC vs. WACC
An insightful way to gauge profitability is by comparing a company's Return on Invested Capital (ROIC) against its Weighted Average Cost of Capital (WACC). Ideally, the ROIC should exceed the WACC. Edison International's ROIC is currently 3.04, which is below its WACC of 6.79, indicating that the company may not be generating sufficient returns on its investments.
Conclusion
Based on the analysis, Edison International (EIX, Financial) appears to be fairly valued in the market. The company's financial condition is weak, and its profitability and growth metrics show potential for improvement. To gain a deeper insight into Edison International's financial history, investors can review the 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
