What Is Going on With Edison International (EIX) Shares?

Shares of Edison International (EIX) jumped 0.4 % during today's afternoon session, bringing their 52 week performance to -3.9%. The stock seems to be overvalued in terms of traditional metrics, but in this day in age, we believe that a complete stock analysis should also take into account the company's poor growth indicators and mixed market sentiment. Edison International, through its subsidiaries, generates and distributes electric power. The large-cap Utilities company is based in Rosemead, United States and has 13,003 full time employees.

EIX Has a Higher P/E Ratio Than the Sector Average

Compared to the Utilities sector's average of 26.37, Edison International has a trailing twelve month price to earnings (P/E) ratio of 34.3 and an expected P/E ratio of 13.4. The P/E ratios are calculated by dividing the company's share price by its trailing 12 month of $1.88 or forward earnings per share of $4.81.

Earnings represent the net profits left over after subtracting costs of goods sold, taxes, and operating costs from the company's recorded sales revenue. One way of looking at the P/E ratio is that it represents how much investors are willing to pay for every dollar's worth of the company's earnings. Since Edison International's P/E ratio is higher than its sector average of 26.37, we can deduce that the market is overvaluing the company's earnings.

EIX Has an Alarming P/B Ratio

The price to book (P/B) ratio of a company is a comparison of the company's market capitalization versus its net asset, or book value. A ratio lower than 1 tells you that the equity market is undervaluing the book value of the company's assets, and ratios higher than 1 tell you that the equity markets are overvaluing the company in terms of its assets.

Of course, a company is worth much more than its assets alone, so the focus on P/B ratio is mainly to enable investors to single out undervalued securities that offer a margin of safety. Since Edison International's P/B ratio of 1.8 is higher than its sector average of 1.47, such a margin of safety does not exist for the stock.

EIX Is Generating Cash

Edison International has decent free cash flows. This represents the actual cash that the company is generating from its sales revenues, minus its re-investments in the business (capital expenditures). The company's operating cash flows have an average growth rate of 104.8%, compared to 7.0% for capital expenditures. From the table below we can also see that the free cash flows has an average growth rate of -99.1% and a coefficient of variability of 46.3%:

Date Reported Cash Flow from Operations ($ MM) Capital expenditures ($ MM) Free Cash Flow ($ MM) YoY Growth (%)
2021-12-31 158 -5,503 -5,345 -26.63
2020-12-31 1,263 -5,484 -4,221 18.58
2019-12-31 -307 -4,877 -5,184 -289.19
2018-12-31 3,177 -4,509 -1,332 n/a

Edison International's Is a Profitable Business

If you are looking to make EIX a long term investment, it's essential that you understand the viability of its business through a study of its margins. Gross margins tell you how much the company makes in profit when only the costs directly related to producing the goods or delivering the service are taken into account. Operating margins, on the other hand, factor in overhead costs so they tell you how effectively Edison International is run.

Edison International's Gross Margins

Date Reported Revenue ($ MM) Cost of Revenue ($ MM) Gross Margins (%) YoY Growth (%)
2021-12-31 14,905 9,185 38.38 3.45
2020-12-31 13,578 8,541 37.1 2.01
2019-12-31 12,347 7,857 36.37 3.35
2018-12-31 12,657 8,203 35.19 n/a

Edison International's Operating Margins

Date Reported Total Revenue ($ MM) Operating Expenses ($ MM) Operating Margins (%) YoY Growth (%)
2021-12-31 14,905 4,174 10.37 27.87
2020-12-31 13,578 3,936 8.11 -48.9
2019-12-31 12,347 2,531 15.87 524.33
2018-12-31 12,657 4,928 -3.74 n/a

Edison International's cost of revenue is growing at a rate of 6.3% in contrast to 4.3% for operating expenses. Sales revenues, on the other hand, have experienced a 5.8% growth rate. As a result, the average gross margins growth is 2.9 and the average operating margins growth rate is 167.8, with coefficients of variability of 3.6% and 108.0% respectively.

We See Mixed Market Signals Regarding EIX

Edison International has an average rating of buy and target prices ranging from $82 to $52. At its current price of $64.57, the company is trading -5.24% away from its target price of $68.14. 2.0% of the company's shares are linked to short positions, and 90.5% of the shares are owned by institutional investors.

Holder Shares Date Reported Percentage Value
Vanguard Group, Inc. (The) 46,704,150 2022-09-29 12% $3,015,686,951
Blackrock Inc. 38,733,087 2022-09-29 10% $2,500,995,415
State Street Corporation 29,265,929 2022-09-29 8% $1,889,701,026
Capital International Investors 20,513,872 2022-09-29 5% $1,324,580,708
Capital Research Global Investors 19,095,350 2022-09-29 5% $1,232,986,743
Pzena Investment Management Llc 13,418,302 2022-09-29 4% $866,419,756
Franklin Resources, Inc. 10,512,592 2022-09-29 3% $678,798,062
FMR, LLC 9,366,335 2022-09-29 2% $604,784,248
Geode Capital Management, LLC 8,006,913 2022-09-29 2% $517,006,369
Macquarie Group Limited 7,276,936 2022-09-29 2% $469,871,755
The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.