Edison Int'l Beats Estimates

 
Edison International (EIX - Analyst Report) reported its 1st quarter 2009 earnings. For the 1st fiscal quarter of 2009, Edison International reported net earnings of $0.76 per share, down 16.5%, compared with $0.91 per share in the year-ago quarter. Excluding non-core items, 1st quarter 2009 core earnings were $0.79 per share, down 14.1% compared with $0.92 per share in the 1st quarter of last year.

Analysts’ consensus estimate was for $0.67 per share.

Consolidated revenue in the reported quarter declined 8.8% to $2.8 billion.

Cash flow from operating activities increased significantly in the 1st quarter 2009 from 1st quarter 2008, despite lower net income. The increase is attributable to higher deferred income taxes and investment tax credits, regulatory assets and depreciation, decommissioning and amortization.

Guidance:
The company reaffirmed its core earnings guidance of $2.90 - $3.20 per share for fiscal 2009. However, the company revised its 2009 GAAP earnings guidance from $2.90 - $3.20 to $1.98 - $2.51, on account of certain non-core items in the range of $0.92 - $0.69. Within this range, SCE and EMG are expected to be $2.49 and $0.70 per share, respectively, while the parent company EIX and Other are expected to register a loss of $0.14 per share in 2009.

Looking ahead, consistent performance through its solid base of stable utility operations, recent SCE rate hike, ongoing alternative energy projects, a global tax settlement, balance sheet strength and a relatively cheap earnings-based valuation -- partially offset by stagnant economy, volatile gas prices and recovery of capital expansion costs -- support our modestly bullish outlook for Edison International.

EIX currently trades at only 9.3x and 8.3x, respectively, our 2009 and 2010 earnings per share estimates, or at a significant discount to the broad electric power utility industry average and the company’s most comparable diversified energy utility peers. Likewise, EIX trades at the lower-end of the range of its peers based on relative book value, sales and cash flow.

With expectations of continued relatively stable long-term earnings with above average long-term growth expectations, despite modestly lower EPS in the current fiscal year, we believe that EIX ought to trade at a premium to comparable public companies.

Accordingly, we maintain a BUY recommendation on EIX common stock with a six-month target price of $30.50, or 10.0x our current-year 2009 EPS estimate and 9.0x our forward 2010 EPS estimate. Price appreciation to our near-term valuation, coupled with the stock’s $0.31 per share quarterly dividend -- deemed to be sustainable and secure based upon the recent dividend increase and very reasonable projected payout ratios -- represents annualized total return potential of 20.4%.

California-based Edison International is a utility holding company operating through three principal subsidiaries: Southern California Edison Company, Edison Mission Energy and Edison Capital. The company’s regulated electric utility operations are based in Southern California where it is the primary utility player and enjoys a very stable market share.