Note: More details to come; changes are highlighted. Except where noted, and highlighted, no other sections of this report have been updated.
Reason for Report: Flash Update: 1Q18 Earnings Results
Prev. Ed.: 4Q17 Update done on Mar 28, 2018.
Flash Update [Note: earnings update in progress; final report to follow]
On May 2, 2018, Edison International reported first-quarter 2018 adjusted earnings per share (EPS) of 80 cents from continuing operations, which missed the Zacks Consensus Estimate of 90 cents by 11.1%.
Excluding one-time items, the company reported GAAP earnings of 67 cents per share, reflecting a decline of 39.6% from the year-ago quarter’s earnings of $1.11 per share.
Total Revenues
Edison International's first-quarter 2018 revenues were $2,564 million, beating the Zacks Consensus Estimate of $2,459 million by 4.3%. The figure was up 4.1% from the year-ago quarter’s tally of $2,463 million.
Operational Highlights
In the reported quarter, total operating expenses increased 12.1% to $2,234 million, primarily on account of a massive increase in impairment and other charges. Also higher purchasing power and fuel expenses (18.1%), operation and maintenance expenses (11.8%) as well as property and other taxes (7%) led to increased operating expenses.
Operating income was $330 million in the reported quarter, down 30% from the year-ago quarter’s figure of $471 million.
Interest expenses were $170 million in the quarter, higher than $152 million in the prior-year quarter.
Segment Results
Southern California Edison’s(SCE) first-quarter core earnings were 88 cents per share compared with $1.07 a year ago. The bottom line fell due to the cost of capital decision on the GRC revenue July 2017, higher operation & maintenance expenses and higher net financing costs.
Parent and other segments reported core loss of 8 cents per share, compared to the year-ago quarter’s earnings of 4 cents.
Financial Update
As of Mar 31, 2018, cash and cash equivalents were $105 million, reflecting a significant decline from $1,091 million of Dec 31, 2017. Long-term debt was $13.4 billion, higher than $11.6 billion of Dec 31, 2017.
Net cash from operating activities as of Mar 31, 2018 was $859 million, compared with $884 million in the prior-year quarter. Total capital expenditure amounted to $1,137 million as of Mar 31, 2018, down $944 million from the prior-year quarter.
Guidance
After the final decision from California Public Utilities Commission on Southern California Edison 2018 GRC, the company will issue the 2018 earnings guidance.
MORE DETAILS WILL COME IN LATER, IMMINENT EDITIONS OF ZACKS RD REPORTS ON EIX.
Portfolio Manager Executive Summary [Note: Only highlighted material has been changed.]
Edison International, through its subsidiaries, engages in the supply of electricity in central, coastal and southern California. Edison International covers southern California as the parent company of Southern California Edison (SCE), the largest electric utility in California.
Of the 11 firms covering the stock, four issued positive ratings and six conferred neutral ratings. Only, one firm stood negative on the stock. The average Zacks Digest target price as per the firms is $71.13 (↓ $17.37 from the previous report; 12.8% down from the current price). The price targets range from $64.00 (approximately 1.47% upside from the current price) to $87.00 (approximately 27.5% upside from the current price).
Neutral or equivalent (54.5%; 6/11 firms):
Positive or equivalent (36.3%; 4/11 firms): The bullish firms were impressed with Edison International’s fourth-quarter 2017 results, wherein the company’s earnings exceeded their expectation. Per the bullish firms, aided by above average dividend and earnings growth compared to peers, a favorable regulatory environment, lower tax reform, strong balance sheet and attractive organic growth opportunities, Edison International’s stock is likely to perform better in the coming days. Recently, the company also raised its dividend that further helps in maximizing shareholder value.
Negative or equivalent (9.2%; 1/11 firms): Per the bearish firm, regulatory environment in California is currently unfavorable for publicly traded utilities. Its exposure to the potential financial liabilities arising from the devastating California wildfires in the company’s service territories remains to be a cause of concern.
Mar 28, 2018
Overview [Note: Only highlighted material has been changed.]
The firms have identified the following factors for evaluating the investment merits of the company:
Key Positive Arguments / Key Negative Arguments· The company is the largest player in the renewable energy field, which gives it a competitive advantage.
· The company has a strong balance sheet and cash position.
· Stable financial position enables the company to pay regular dividends and maximize shareholder value. California’s supportive regulatory environment would allow the utility to grow to stronger levels.
· Its subsidiary has highlighted a well-defined rise in its regulated rate base.
· Low tax reform also allows the company to increase its rate base guidance. / · The company’s performance is subject to approvals from regulatory bodies like the California Public Utilities Commission (CPUC) and the Federal Energy Regulatory Commission (FERC) as it generates more than 80% of its revenues from regulated utility assets. Additionally, any adverse decision on a General Rate Case (GRC) will greatly affect the utility's earnings growth.
· Changes in federal, state and local legislative requirements, as well as extensive environmental regulations could affect the company’s performance.
· The company is also currently in the midst of a major rate-case filing. Though it has requested robust capital spending, but regulators have questioned regarding the necessity of the grid modernization investment.
· The long-term financial exposure to the damages caused by Wildfires remains a headwind for the company.
Headquartered in Rosemead, CA, Edison International (EIX), through its subsidiaries, generates and distributes electric power. It invests in infrastructure and energy assets, including renewable energy. Edison International is the parent holding company of Southern California Edison (SCE). SCE is an investor-owned public utility primarily engaged in the business of supplying electricity to an approximate 50,000-square-mile area of southern California. Edison International is also the parent company of Edison Energy, a subsidiary that holds interest in competitive businesses related to the generation or use of electricity. The SCE service territory has a population of approximately 14 million people where it has roughly 5 million customer accounts as of December 2016.
Edison International reports under SCE and Edison International Parent and Other. Other refers to Edison International Parent, Edison Energy and other subsidiaries. The company’s fiscal year coincides with the calendar year. Further information on the company is available at its website: www.edison.com.Mar 28, 2018
Long-Term Growth [Note: Only highlighted material has been changed.]
Southern California Edison (SCE) currently intends to invest $14.8 billion between 2018 and 2020, including an allocation of approximately $4.9 billion for 2018. The company’s capital investment plan includes the 2015 GRC decision, FERC and non-GRC CPUC spending. It also includes grid modernization spending of $1.8 billion during the four-year period and $107 million of non-GRC CPUC capital spending for grid modernization. It primarily focuses on expanding its distribution and transmission facilities, pole loading and deteriorated poles program, replacement of infrastructure and investment to improve reliability as well as energy storage capacity.
Edison International is focusing on its core electric utility operation, SCE by selling nearly all of its unregulated assets. This move erases the risk as the company’s earnings are provided by its regulated business.
Southern California Edison is an industry leader, which excels in meeting challenges in the new energy landscape. It has aggressively secured renewable purchase power agreements for its utility-owned rooftop solar generation. It is also building transmission lines to access renewable energy in order to meet the California Renewable Portfolio Standard. Currently, much of SCE’s transmission investment program is for projects that facilitate access to renewable energy resources in desert and mountain regions, east and north of its load center to meet the 33% renewable mandate by 2020. The California Independent System Operator (CAISO) will similarly be initiating long-term transmission planning to meet the 2030 mandate for SCE to deliver 50% of its energy from qualifying renewable resources. Edison International boasts a stable financial position and to maximize shareholder value through the payment of regular dividends. Going forward, management plans to increase dividend above industry average growth rate toward its target payout ratio of 45% to 55% of SCE earnings in steps over time.
According to the firms, California’s supportive political climate can continue to produce above-average growth in the near-to-middle term. Overall, they believe that the utility is well positioned for strong growth in a constructive regulatory climate in California.
Currently, Edison International has a long runway of capital-spending opportunities amounting to roughly $4 billion-$5 billion per year into the next decade. The company intends on achieving steady, above average growth while minimizing increases in customer bills into the next decade, as opposed to more volatile growth through the inclusion of higher-risk projects.
The firms believe that the company is likely to gain over the long term driven by a very strong capital-expenditure program and infrastructure investment. Additionally, they are of the opinion that the company is anticipated to gain due to the better positioning of the utility sector as a whole that has encouraged it to increase expectations about the likelihood of the company spending more on utility infrastructure going forward.
Mar 28, 201
Target Price/Valuation [Note: Only highlighted material has been changed.]
Rating DistributionPositive / 36.3¯
Neutral / 54.5¯
Negative / 9.2%↑
Avg. Target Price / $71.13↑
Highest Target Price / $87.0↑
Lowest Target Price / $64.0↑
Analysts with Target Price/Total / 8/11
Key risks to the price target include lower long-term power prices, higher coal and rail costs, increased environmental expenditure, rate case risk at SCE, weather, interest rates, environmental concerns and continued difficulties in procuring turbines for the company’s growing wind generation portfolio.
Recent Events [Note: Only highlighted material has been changed.]
On Feb 23, 2018, Edison International reported fourth-quarter 2017 adjusted earnings per share (EPS) of $1.10 from continuing operations, beating the Zacks Consensus Estimate of 93 cents per share by 18.3%. The bottom line also increased 13.4% from 97 cents in the year ago.
Revenue [Note: Only highlighted material has been changed.]
Edison International's fourth-quarter revenues were $3,220 million, beating the Zacks Consensus Estimate of $2,878 million by 11.9%. Also, revenues were up 11.7% from the year-ago quarter’s figure of $2,884 million.
Revenues in 2017 came in at $12.32 billion, beating Zacks Consensus Estimate of $12.15 billion. The top line also increased 3.8% from $ 11.86 billion in the year-ago quarter.
Margins [Note: Only highlighted material has been changed.]
In the reported quarter, total operating expenses increased 39.6% to $3,236 million, mainly on account of higher purchasing power and fuel expenses (18.9%), operation and maintenance expenses (1.5%), and increased impairment and other charges.
Operating loss was $16 million in the reported quarter.
Interest expenses were $166 million in the quarter, higher than $150 million from the prior-year quarter.
Earnings per Share [Note: Only highlighted material has been changed.]
Edison International reported fourth-quarter 2017 adjusted earnings per share (EPS) of $1.10 from continuing operations, beating the Zacks Consensus Estimate of 93 cents per share by 18.3%. The bottom line also increased 13.4% from 97 cents in the year ago.
Excluding the one-time items, the company reported GAAP loss of $1.67 per share, against the year-ago quarter’s earnings of $1.01.
The company reported 2017 adjusted earnings of $4.50 per share, beating the Zacks Consensus Estimate of $4.32 by 4.2%. Earnings increased 13.4% from the year-ago figure of $3.97 per share.
Segments Results
Southern California Edison’s (SCE) fourth-quarter core earnings were $1.15 per share compared with $1.01 a year ago. The bottom line in the reported quarter increased due to higher revenues on account of an escalation mechanism set forth in the 2015 General Rate Case (GRC) decision.
Parent and other segments reported fourth-quarter core loss of 5 cent per share, a penny wider than the year-ago quarter’s loss of 4 cents. The decline reflects lower tax benefits related to stock-based compensation.
Guidance
After issuance of a final decision by CPUC on Southern California Edison 2018 GRC, the company will provide 2018 earnings guidance.
Outlook
EPS is anticipated to grow over the next several years, exceeding the industry average. Ongoing infrastructure investments are also anticipated to support EPS growth in the future. The above-average long-term earnings growth is majorly driven by a very strong capital-expenditure program.
Mar 28, 2018
Research Analyst / Raj KarnaniCopy Editor
Content Editor / Aparajita Dutta
Lead Analyst / Aparajita Dutta
QCA / Jewel Saha
No. of brokers reported/Total brokers
Reason for Update / 1Q18 Flash Update