Edison International (EIX) Annual Valuation – 2014

500px-Edison_International_Logo.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing 5 Low PEmg Companies for the Defensive Investor.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Edison International (EIX) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Edison International, is a holding company of Southern California Edison Company (SCE). SCE is a public utility primarily engaged in the business of supplying electricity to an approximately 50,000 square-mile area of southern California. The SCE service territory contains a population of nearly 14 million people and SCE serves the population through approximately 5 million customer accounts. In August 2013, Edison International completed the acquisition of SoCore Energy, LLC.

EIX Chart

EIX data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 3/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 1/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – FAIL
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – FAIL

Valuation Summary

Key Data:

Recent Price $56.74
MG Value $12.85
MG Opinion Overvalued
Value Based on 3% Growth $40.09
Value Based on 0% Growth $23.50
Market Implied Growth Rate 6.01%
Net Current Asset Value (NCAV) -$102.50
PEmg 20.52
Current Ratio 0.68
PB Ratio 1.86

Balance Sheet – 12/31/2013

Current Assets $3,312,000,000
Current Liabilities $4,881,000,000
Total Debt $9,825,000,000
Total Assets $46,646,000,000
Intangible Assets $0
Total Liabilities $36,708,000,000
Outstanding Shares 325,810,000

Earnings Per Share

2013 $2.67
2012 $4.55
2011 -$0.10
2010 $3.81
2009 $2.60
2008 $3.68
2007 $3.32
2006 $3.28
2005 $3.34
2004 $0.68

Earnings Per Share – ModernGraham

2013 $2.76
2012 $2.84
2011 $2.21
2010 $3.36
2009 $3.17
2008 $3.26

Dividend History

EIX Dividend Chart

EIX Dividend data by YCharts


Edison International is not suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor’s concerns are the low current ratio, the lack of sufficient earnings stability or growth over the last ten years, and the high PEmg ratio.  The Enterprising Investor has an issue with the high level of debt relative to the current assets, the lack of earnings growth and the lack of earnings stability.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities through a review of ModernGraham Stocks & Screens and 5 Undervalued Companies for the Enterprising Investor.  From a valuation side of things, the company appears to be overvalued after seeing its EPSmg (normalized earnings) drop from $3.17 in 2009 to $2.76 for 2013.  This demonstrated drop in earnings does not support the market’s implied estimate of 6.01% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Edison International (EIX)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in Edison International (EIX) or any other company mentioned in the article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from wikipedia; this article is not affiliated with the company in any manner.

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