We have maintained our Neutral recommendation on
) on Dec 13, 2013.
AES CORP (AES): Free Stock Analysis Report
EDISON INTL (EIX): Free Stock Analysis Report
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Why Kept at Neutral?
Our reiteration was based on the inherent business strength of
its regulated utility Southern California Edison (SCE), third
quarter results and an improved outlook, partly tempered by the
shutdown of nuclear plants, low hedging exposure and regulatory
Edison International's third quarter earnings were well ahead of
the Zacks Consensus Estimate by 17.4% and the year-ago profit
level by 42.0%. The upside was driven by robust cost management
initiatives along with favorable tax benefits.
Specifically, SCE's adjusted earnings increased 31.5% buoyed by
higher rates under the company's 2012 General Rate Cases (GRC)
implemented in Nov 2012 and tax benefits. With a forward-looking
regulatory backup allowing the utility to file its GRC for three
years, SCE has witnessed a sharp rise in its regulated rate base
in recent times.
In its third quarter earnings call, the company lifted its core
earnings per share guidance to the range of $3.60-$3.70 from the
previous expectation of $3.25-$3.45 for 2013. Its improved
outlook reflects new assumptions about income taxes and lower
operating and maintenance costs. It has also updated its basic
earnings to $2.50-$2.60 from its prior target of $2.22-$2.42 per
Edison generates more than 80% of revenues from its regulated
utility assets. Just as rate sanctions from regulatory bodies
like CPUC and FERC will boost the company's top line, any adverse
verdict can dent its bottom line.
Again, the nuclear industry is witnessing a difficult year, given
the availability of low-priced natural gas and the
government-subsidized wind sector. Meanwhile, the permanent
shutdown of Units 2 and 3 of its San Onofre Nuclear Generating
Stations ("SONGS") in California worsens the situation. Moreover,
the closure of the San Onofre units will make the Diablo Canyon
plant on the Central Coast California's lone nuclear plant.
The Zacks Consensus Estimate for the fourth quarter currently
stands at 66 cents a share, with an expected 62.6% year-over-year
decline. However, no movement was noticed in the last 7 or 30
days. For 2013, the Zacks Consensus Estimate is pegged at $3.64
per share, and has not shown any movement over either 7 or 30
Other Stocks to Consider
Edison International presently retains a Zacks Rank #2 (Buy).
Stocks that are also worth considering in the space are Zacks
Ranked #1 (Strong Buy)
Westar Energy, Inc.
), and Zacks Ranked #2 (Buy)
The AES Corp.
Alliant Energy Corporation