On Apr 19, 2013, shares of Edison International (EIX) hit a new 52-week high of $52.48. Though the company had experienced negative earnings surprises in all the other three quarters of 2012, positive earnings surprise of 66.0% in the last quarter resulted in an average beat of 4.05%.
Infrastructure improvement programs, strong portfolio of regulated utility assets, effective cash deployment strategy and the favorable resolution of the pending General Rate Case have helped the company to achieve this new high.
Currently, Edison International has an inventory turnover of 16.13 times in the trailing twelve months compared to 13.07 times for the Zacks industry average which represents a strong sign of operational efficiency. In addition, the company’s operational effectiveness is evident in its industry-high Return on Investment of 4.5% and current ratio of 0.71.
Edison International continues to be a strong cash generator with its operating cash flow reaching approximately $3.3 billion in 2012. Cash and cash equivalents at the end of 2012 were $170 million compared to $169 million in 2011. Also, the company follows an effective cash deployment strategy via dividend payments. In Dec 2012, the company increased its annual dividend from $1.30 to $1.35 per share. With the current adjusted closing price of $52.47, the company generates a dividend yield of 2.6%.
The company is focused on implementing infrastructure improvement programs with California’s renewable energy mandate through programs like SmartConnect and Solar Photovoltaic Program. Going forward, Californian economic fundamentals would allow the utility to grow to stronger levels with the improvement of the business environment.
Recently, a subsidiary of Edison International, Southern California Edison announced that it will invest more than $2.2 million to upgrade a distribution circuit that serves portions of the city of Rancho Palos Verdes. It will replace approximately 150 poles, 57 transformers and 2.75 miles of overhead power lines in order to improve system reliability and smart grid technology.
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. With the management targeting to pay 45% – 55% of Southern California Edison’s earnings as dividend we see ample scope for dividend appreciation going forward.
Edison International presently retains a short-term Zacks Rank #2 (Buy). Other stocks worth considering are Brookfield Infrastructure Partners L.P. (BIP), Empresa Nacional de Electricidad S.A. (EOC), and Pike Electric Corporation (PIKE), all with a Zacks Rank #1 (Strong Buy).
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