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Edison International’s (EIX - Analyst Report) wholly owned subsidiary Southern California Edison (“SCE”) announced that it intends to redeem all of the outstanding shares of its Series B and Series C Preference Stock. The redemption date will be Feb 28, 2013, and the redemption price will be $100 per share of Series B and C Preference Stock plus accrued and unpaid dividends up to, but excluding the redemption date.
Earlier, Edison International, in the first nine months of 2012, generated $2.16 billion from operating activities compared with $2.82 billion generated in the year-ago period. Cash and cash equivalents at the end of the reported period were $1.08 billion versus $1.39 billion at the end of the year-ago period. The strong liquidity position allows the company to engage in the redemption plan from its own pocket.
Based in Rosemead, CA, Edison International engages in the supply of electric energy in central, coastal and southern California.
With its strong portfolio of regulated utility assets and well-managed merchant energy operations, Edison International presents a lower risk profile compared to its utility-only peers. In addition, an incremental dividend adds to the company’s appeal with the Federal Reserve planning to keep benchmark interest rates low through mid-2013. Going forward, with the management targeting to dish out 45% – 55% of Southern California Edison’s earnings as dividend we see ample scope for dividend appreciation going forward.
Southern California Edison operates in a supportive regulatory environment of California. The California regulator has decoupled earnings from demand volatility and also partial recovery of fuel and power purchase cost. The company is also implementing infrastructure improvement programs, focusing mainly on system reliability, smart grid technology and compliance with California’s renewable energy mandate through programs like SmartConnect and Solar Photovoltaic Program (SPVP). Going forward, Californian fundamentals would allow the utility to grow to stronger levels with the improvement in the economic environment.
With a forward-looking regulatory backup allowing the utility to file its General Rate Cases for three years, Southern California Edison has witnessed a sharp rise in its regulated rate base in recent times. Over the past five years, the regulators allowed rate base of the utility to grow by a CAGR of approximately 11%. Overall, the company plans capital expenditure in the range of $11.8 billion to $13.2 billion for 2012 through 2014 to boost annualized growth in its rate base by 7% – 9%.
Currently, it holds a short-term Zacks Rank #3 (Hold), primarily due to the high-level of current valuation of Edison International. Year to date, the stock rose almost 4.5% and is now trading near its 52-week high. Utilities that currently look better-positioned include Ameren Corporation (AEE - Analyst Report), Integrys Energy Group, Inc. (TEG - Analyst Report), and Pike Electric Corporation (PIKE - Snapshot Report). All are Zacks Rank #1 (Strong Buy) stocks.