Should You Revisit Edison International After a 26% Drop and Wildfire Liability Headlines?

• Wondering if Edison International is presenting a real buying opportunity right now? Let’s break down if the current stock price actually offers value, or if there is more to the story than meets the eye.
• The stock has bounced back 2.8% in the past week and is up 3.9% for the last 30 days, though it is still down a steep 26.1% year-to-date and 29.2% over the past year, making many investors question where it might go next.
• Recent headlines have zeroed in on regulatory challenges and California wildfire liabilities, prompting significant volatility in the share price. Changes in state legislation and investor sentiment about risk are keeping Edison International firmly in the spotlight as the market reacts to each new development.
• The company's valuation score currently stands at 5 out of 6, based on how many valuation checks it passes as undervalued. In the next section, we will dive into how this score is calculated and compare some common valuation approaches, but there might be an even smarter way to spot underappreciated value, so stay tuned to the end.

Find out why Edison International's -29.2% return over the last year is lagging behind its peers.

Approach 1: Edison International Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model aims to estimate a company's intrinsic value by projecting its future cash flows and discounting them back to their present value. This method shows what those future cash flows are worth today, providing a foundation for investment decisions based on projected growth and risk.

For Edison International, the DCF model uses a two-stage free cash flow to equity approach. The company’s last twelve months of free cash flow stood at a negative $630.9 Million, but projections suggest a rebound. By 2027, analyst estimates forecast free cash flow of $275 Million, with Simply Wall St extrapolating continued growth beyond this period. In fact, ten-year projections anticipate free cash flow reaching almost $3.3 Billion by 2035. All projections are denominated in dollars and take into account analyst forecasts for the near term, with future growth estimates based on historical trends and industry outlook.

On this basis, Edison International’s estimated intrinsic value sits at $102.25 per share. This represents a 42.2% discount to the current trading price, which signals that the stock may be significantly undervalued according to the DCF model’s assumptions.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Edison International is undervalued by 42.2%. Track this in your watchlist or portfolio, or discover 928 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Edison International.

Approach 2: Edison International Price vs Earnings

For profitable companies like Edison International, the Price-to-Earnings (PE) ratio is a widely used valuation metric because it shows how much investors are willing to pay for each dollar of current earnings. Typically, a higher PE ratio reflects stronger growth expectations and/or lower perceived risk. In contrast, a lower PE ratio may mean the market is less optimistic or sees greater risk ahead.

Edison International’s current PE ratio stands at 7.7x, which is noticeably below both the Electric Utilities industry average of 20.9x and the peer average of 21.3x. This gap can indicate either a discount due to concerns specific to the company or a genuine value opportunity if those concerns are overstated.

To move beyond simple industry or peer comparisons, Simply Wall St calculates a proprietary "Fair Ratio" for each stock. The "Fair Ratio" for Edison International is 19.4x. This measure is designed to reflect what the PE ratio should be given the company’s expected earnings growth, profit margins, industry conditions, market cap, and associated risks. It offers a more rounded benchmark than just comparing to the industry alone because it tailors the expectation to Edison International’s individual circumstances.

Comparing the fair ratio of 19.4x with Edison International’s actual PE of 7.7x suggests the shares are currently undervalued based on earnings fundamentals and risk-adjusted expectations.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1440 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Edison International Narrative

Earlier we mentioned there is an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is your personal story about a company’s future. It combines your assumptions about revenue, earnings, and profit margins with your view on its risks and opportunities, connecting the dots between what’s happening in the business and what you think it’s worth.

With Narratives, you quickly link Edison International’s underlying story to a forward-looking financial forecast and arrive at your own unique fair value, all within an easy-to-use tool on Simply Wall St’s Community page, which is trusted by millions of investors. This makes it simple to compare your fair value to the current stock price, helping you decide if it’s time to buy, sell, or wait. Narratives are updated dynamically whenever there’s new information, so your view automatically accounts for fresh earnings, regulatory rulings, or news headlines.

For example, one investor may build a Narrative that expects aggressive electrification and sustained revenue growth, resulting in a bullish $86 price target. Another might see ongoing wildfire risks and regulatory challenges as reasons for a more cautious $52.5 fair value. Both perspectives are powered by their own assumptions, but each is translated into a clear forecast and actionable insight.

Do you think there's more to the story for Edison International? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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