Hook & thesis
Edison International (EIX) looks like a classic utilities trade that has been punished by headline risk but supported by underlying earnings strength and a meaningful dividend. At $71.79 the stock trades near its 52-week high of $72.68 after a run that accelerated following recent results. The combination of a low P/E (~9.4), a roughly 4.7% yield and improving technical momentum makes a tactical long attractive for investors willing to tolerate operational and legal overhangs tied to wildfire management.
My thesis: the market is pricing a higher structural risk premium into EIX than the company's current fundamentals and near-term earnings trajectory justify. Valuation, yield and return on equity argue for a tactical buy while the wildfire-related legal and cash-flow risks argue for a contained position size and a defined stop.
What Edison International does and why it matters
Edison International is a regulated electric utility based in Rosemead, California. Through subsidiaries it generates and distributes electricity and invests in energy services and grid technologies. Utilities are a foundational part of the U.S. power chain; for EIX the key fundamental drivers are regulated rate recovery, capital spending on grid hardening and renewables integration, and demand trends from commercial/industrial customers.
The market cares because Edison combines defensive cash flows with capital intensity: the business can generate steady EPS and dividends when regulatory frameworks allow cost recovery, but large capex programs and wildfire liabilities can quickly swing free cash flow. That combination makes the stock sensitive to both earnings beats and headline legal risk.
Data-backed view: fundamentals and valuation
At the current price of $71.79, Edison trades at a market cap of approximately $27.6 billion. Reported earnings per share in the latest metrics are $7.67, implying a trailing P/E near 9.3. That is a low multiple for a large regulated utility, suggesting the market is demanding a significant risk premium.
Other useful metrics:
- Dividend yield: ~4.7% - an attractive income cushion against share volatility.
- Return on equity: 15.26% - solid profitability for a utilities operator.
- Enterprise value: ~$65.4 billion, producing EV/EBITDA ~7.2 and EV/Sales ~3.62.
- Debt to equity: ~1.98 - leverage is elevated versus many peers, consistent with capital-intensive grid work.
- Free cash flow: negative $722 million - FCF pressure exists and is likely tied to capex and working capital timing around wildfire mitigation and grid upgrades.
Those numbers point to a company generating respectable accounting earnings and payout capacity, but with cash-flow strain in the short run. The low P/E and attractive EV/EBITDA indicate valuation is already discounting downside scenarios.
Technical picture that matters for timing
Momentum indicators are supportive but show the stock is extended. A 10-day simple moving average sits around $66.13 and the 50-day around $61.24, while the 10-day exponential average is $67.46 and the 50-day EMA $62.03 - this is a rising trend infrastructure. However, RSI is approximately 81.4, which is overbought and raises the odds of near-term mean reversion. Short interest has risen modestly with the latest settlement showing roughly 10.95 million shares short and days-to-cover around 3.66, signaling short-sellers remain active but not overwhelmingly crowded.
Valuation framing - why this matters
Put simply, Edison appears to be priced as a utility with meaningful execution and legal risk priced in. At a market cap near $27.6 billion and EPS of $7.67 the P/E near 9.3 is well below many regulated peers that often trade in the mid-teens P/E when growth is visible. On an EV/EBITDA basis the stock sits at ~7.2 - a reasonable multiple for a company with steady regulated revenue but elevated leverage and negative recent free cash flow.
Valuation is the central reason to be constructive: if earnings hold and the dividend continues, upside to a normalized mid-teens P/E or even a modest multiple expansion would drive stock gains from here. That upside is why we take a tactical long with a defined stop instead of an open-ended position.
Catalysts that can drive the trade
- Quarterly earnings beats and upward guidance - continued EPS resilience would validate the low multiple and press shorts to cover.
- Regulatory approvals for cost recovery tied to wildfire mitigation and grid hardening - clear rate-recovery mechanics reduce cash-flow uncertainty.
- Stabilization or improvement in free cash flow - narrowing or reversing the negative FCF figure (-$722M) would remove a central fundamental overhang.
- Dividend continuity - continued dividend payments at current levels (near 4.7%) keep income investors engaged and support the floor under the share price.
Trade plan (actionable)
Direction: Long
Entry price: $71.79
Target price: $78.00
Stop loss: $66.00
Horizon: mid term (45 trading days) - I expect the trade to play out over the next one-to-two months as earnings confirmation, regulatory clarity, or short-covering lifts the stock toward the target. If momentum is sustained, the position can be held into the longer term with a reevaluation at key catalysts.
Rationale: Entry at $71.79 captures the current momentum while the stop at $66.00 limits downside to a level below the 10-day SMA and meaningfully protects against a volatility-driven gap lower. The $78.00 target is a measured upside that reflects multiple expansion from ~9.3x to roughly 10.2x-10.5x or modest EPS upside through operational improvement and improved cadence on rate recovery.
Risk profile and hedging
This is a medium-risk trade. The primary mitigant is a tight stop and modest position sizing that recognizes wildfire litigation and cash-flow swings. If you trade size larger than a guideline position, consider partial hedges (e.g., short-term puts) or laddering the entry to reduce gap risk.
Risks and counterarguments
- Wildfire litigation and regulatory liability: Edison has been the subject of legal scrutiny and investigations related to Public Safety Power Shutoffs and fire-risk management with notable actions reported in 05/17/2025 and 08/07/2025. Adverse legal outcomes or large damage awards could materially impair capital allocation and shares.
- Negative free cash flow: The company reported -$722M in free cash flow. If capex remains elevated without timely rate recovery, the company could face funding pressure and dividend risk.
- High leverage: Debt-to-equity around 1.98 increases balance-sheet sensitivity to cash-flow disruptions and could limit future flexibility.
- Technical overextension: RSI near 81 suggests a meaningful chance of near-term pullback; traders should be prepared for volatility and potential gap-downs.
- Regulatory outcomes are binary: Rate cases and cost recovery mechanisms can be unpredictable. Unfavorable decisions would compress margins and lower the fair multiple for the stock.
Counterargument: The market's heavy discount for EIX may be warranted if legal rulings and wildfire liabilities translate into sustained cash-flow impairment or if rate recovery is delayed. If free cash flow remains negative and the company needs to cut the dividend or add significant incremental debt, the current valuation could prove too optimistic. These scenarios justify maintaining strict stops and small position sizes rather than a full conviction long.
What would change my mind
I would reduce conviction or flip to neutral/short if any of the following occurred:
- A significant adverse legal ruling or a material increase in disclosed wildfire liabilities that materially changes the balance-sheet outlook.
- Quarterly results that show deteriorating earnings or a persistent widening of negative free cash flow beyond the current -$722M without credible regulatory remedies.
- A dividend cut or explicit guidance that increases the probability of reduced shareholder payout.
Closing thoughts
Edison International is a trade that rewards decisiveness and risk management. The stock combines attractive yield and low valuation with tangible headline risk. For disciplined, income-oriented traders who accept the wildfire/legal overhang, a tactical long at $71.79 with a stop at $66.00 and a mid-term target of $78.00 offers a reasonable risk-reward. The keys to success are tight stops, explicit sizing, and watching the upcoming regulatory and earnings beats closely.
Trade plan summary: Long EIX at $71.79, target $78.00, stop $66.00 - mid term (45 trading days).