Edison International (EIX:US), owner of California’s second-largest electric utility, is “compelling” for investors seeking under-valued companies, Sanford C. Bernstein & Co.’s Hugh Wynne said.
Edison International is trading at a discount to the value of its Southern California Edison subsidiary, one of the most profitable and fastest-growing U.S. utilities, Wynne said in an interview today on Bloomberg Radio’s “Bloomberg Surveillance.”
“Utilities have found their place in the sun,” said Wynne, a New York-based utilities analyst for Bernstein. If economic growth remains slow and inflation and long-term interest rates stay low, “history will tell us utilities will deliver returns that are above what’s expected for equities more broadly.”
The Standard & Poor’s 500 Electric Utilities Index (S5ELUT) has dropped 3.9 percent this year, compared with an 12 percent gain in the broader S&P 500 Index. Edison, which has gained 2.7 percent this year, reached a 52-week high on March 1. Today, it rose 0.2 percent to $42.50 at the close in New York.
The company, based in Rosemead, California, has been hurt by losses at its Edison Mission unregulated generation unit, which is unprofitable and indebted as wholesale power prices decline, Wynne said.
The subsidiary’s debt is non-recourse, meaning “there’s no obligation for the utility or holding company to backstop that debt,” Wynne said. “If necessary, the competitive generation subsidiary could be put into bankruptcy.”
Wynne has an outperform rating on Edison, meaning the company is expected to have better returns than its peers.
PG&E Corp. (PCG:US) owns the state’s largest electric utility.
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