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Edison International Stock Valuation

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Edison International 

Valuation of Common Stock and Business

Prepared By:

Delbert L. Jones III

Presented to:

California State University Dominguez Hills

Finance 483: Financial Analysis II

Dr. Ricardo Ulivi

May 21, 2009

Executive Summary

Purpose

The purpose is to understand and evaluate the financial conditions of Edison International (EIX).  This project will help predict the company’s future performance based on past trends and its current financial condition.

Criteria

I chose to analyze and evaluate Edison International, which is a part of the Utilities Sector and the Electric Utilities Industry.  One of the deciding factors for analyzing Edison International is their balanced business mix, balance sheet strength, and flexibility for future growth. There has been a renewed interest in energy procurement and renewable energy solutions. I used Edison International’s website as well as Reuters and Google Finance to obtain financial data and historical values. For the purpose of comparing companies in the same industry for the ratio analysis portion of the paper I selected Pacific Gas & Electric Corporation (PG&E) and Hawaiian Electric Industries, Inc.

Sections

  • Company Overview
  • Management Analysis
  • Ratio Analysis-Company’s Current Financial Condition
  • Assumptions
  • 5 Year Forecast
  • Recommendations/Conclusion

Conclusion

My recommendation on whether to purchase Edison International common stock based on analysis data will be included n the conclusion of the report.

Table of Contents

Executive Summary        2

Table of Contents        3

Company Overview        4

Management Analysis        6

Ratio Analysis        8

Forecast/Assumptions        10

Conclusions        12

REFERENCES        13

Company Overview

Edison International, incorporated on April 20, 1987, is engaged in the business of becoming the parent holding company of Southern California Edison Company (SCE), a California public utility corporation, and of nonutility companies. The principal nonutility companies are Edison Mission Energy (EME), which is an independent power producer engaged in the business of developing, acquiring, owning or leasing, and selling energy and capacity from independent power production facilities and also conducts hedging and energy trading activities in power markets open to competition; and Edison Capital, which has investments in energy and infrastructure projects globally and in affordable housing projects located throughout the United States. The Company operates in three business segments: an electric utility operation segment (SCE), a nonutility power generation segment (EME), and a financial services provider segment (Edison Capital).

South California Edison Company

SCE is a public utility engaged in the business of supplying electric energy to a 50,000-square-mile area of central, coastal and southern California, excluding the City of Los Angeles and certain other cities. This SCE service territory includes approximately 432 cities and communities and a population of more than 13 million people.

SCE supplies electricity to its customers through the transmission and distribution networks. Its transmission facilities (which exist primarily in California but also in Nevada and Arizona), deliver power from generating sources to the distribution network, consist of approximately 7,200 circuit miles of 33 kilovolt , 55 kilovolt, 66 kilovolt, 115 kilovolt, and 161 kilovolt lines and 3,520 circuit miles of 220 kilovolt lines, 1,240 circuit miles of 500 kilovolt lines, and 889 substations. SCE’s distribution system, which takes power from substations to the customer, includes approximately 71,500 circuit miles of overhead lines, 40,000 circuit miles of underground lines, 1.5 million poles, 719 distribution substations, 715,527 transformers, and 810,519 area and streetlights, all of which are located in California.

SCE owns and operates an undivided 78.21% interest (1,760 megawatt) in San Onofre Units 2 and 3, which are pressurized water nuclear generating units located on the California coastline between Los Angeles and San Diego; 36 hydroelectric plants (1,178.9 megawatt) located in California’s Sierra Nevada, San Bernardino and San Gabriel mountain ranges, three of which (2.7 megawatt) are no longer operational and would be decommissioned; a diesel-fueled generating plant (nine megawatt) located on Santa Catalina island off the southern California coast; a natural gas-fueled two unit power plant (1,050 megawatt) located in Redlands, California, and four gas-fueled, combustion turbine peaker plants located in the cities of Norwalk, Ontario, Rancho Cucamonga and Stanton, California (combined generating capacity of 186 megawatt). SCE owns an undivided 56% interest (884.8 megawatt net) in Mohave, which consists of two coal-fueled generating units that no longer operate, located in Clark County, Nevada near the California border.

SCE owns an undivided 15.8% interest (601 megawatt) in Palo Verde Units 1, 2 and 3, which are large pressurized water nuclear generating units located near Phoenix, Arizona, and an undivided 48% interest (720 megawatt) in Units 4 and 5 at Four Corners, which is a coal-fueled generating plant located near the City of Farmington, New Mexico. Palo Verde and Four Corners are operated by Arizona Public Service Company, as operating agent for SCE and other co-owners of these generating units. During the year ended December 31, 2008, the SCE-owned generating capacity was 43% nuclear, 22% hydroelectric, 22% natural gas, 13% coal, and less than 1% diesel.

Edison Mission Group Inc.

Edison Mission Group Inc. (EMG) is a wholly owned subsidiary of Edison International. EMG is the holding company for its principal wholly owned subsidiaries, EME and Edison Capital. EME is a holding company which operates primarily through its subsidiaries and affiliates which are engaged in the business of developing, acquiring, owning or leasing, operating, and selling energy and capacity from independent power production facilities. EME also conducts hedging and energy trading activities in power markets open to competition through Edison Mission Marketing and Trading, Inc. (EMMT), its subsidiary. EME is an indirect subsidiary of Edison International.

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