Edison International (EIX, Financial) experienced a daily loss of 1.62% and a 3-month loss of 3.38% as of September 28, 2023. With an Earnings Per Share (EPS) of $2.48, the question arises: is the stock modestly undervalued? This article aims to provide a comprehensive valuation analysis of Edison International. Keep reading to explore in-depth insights into the company's worth.
A Snapshot of Edison International
Edison International is the parent company of Southern California Edison, a utility that supplies power to 5 million customers across a 50,000-square-mile area in Southern California, excluding Los Angeles. Edison Energy, another subsidiary, deals in energy-related products and services. The company's current stock price is $64.24, while its fair value (GF Value) stands at $71.27. This discrepancy suggests a potential undervaluation of the stock.
Understanding the GF Value
The GF Value is a proprietary valuation measure that calculates the intrinsic worth of a stock. It is based on historical trading multiples, a GuruFocus adjustment factor for past company performance and growth, and future business performance estimates. The GF Value Line provides an overview of the stock's fair trading value. If the stock price significantly deviates from the GF Value Line, it could indicate overvaluation or undervaluation, affecting its future returns.
Edison International (EIX, Financial) appears to be modestly undervalued according to the GF Value. This suggests that the long-term return of its stock is likely to be higher than its business growth.
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Assessing Financial Strength
Before investing in a company, it's crucial to evaluate its financial strength. Companies with poor financial health pose a higher risk of permanent loss. The cash-to-debt ratio and interest coverage can provide insights into a company's financial robustness. With a cash-to-debt ratio of 0.01, Edison International's financial health is worse than 95.26% of companies in the Utilities - Regulated industry. Its overall financial strength score is 3 out of 10, indicating poor financial health.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. Edison International has been profitable 9 out of the past 10 years, with a revenue of $17.20 billion and Earnings Per Share (EPS) of $2.48 over the past twelve months. However, its operating margin of 11.95% ranks worse than 50.59% of companies in the Utilities - Regulated industry, indicating fair profitability.
Growth is a crucial factor in a company's valuation. Edison International's 3-year average annual revenue growth rate is 7.5%, which ranks worse than 51.23% of companies in its industry. The 3-year average EBITDA growth rate is 1.8%, ranking worse than 61% of companies in the same industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can provide insights into its profitability. Edison International's ROIC is 2.74, and its WACC is 6.68. When the ROIC is higher than the WACC, it suggests that the company is creating value for shareholders.
Conclusion
In conclusion, Edison International (EIX, Financial) appears to be modestly undervalued. Despite its poor financial condition, the company's profitability is fair. Its growth ranks worse than 61% 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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