Edison International (EIX)

Total return at 5 years: 22.4%/year = 16.8% appreciation + 5.6% dividend. The target price ($121) is ex-dividend; the $21 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $176 · Multiples $115) exceeds the market price ($56).

Today — with margin of safety: at $56 trades ~51.8% below its value discounted to today (~$115) — the wide discount we require (≥38%, equivalent to a ~15% annual return); the risk is covered by the margin, not the rate.

At 5 years — Muy infravalorado: the target price ($121) plus dividends yield above the required average return (10%) — the business compounds.

The bridge: the return at 5 years comfortably exceeds the risk-free rate (4.5%) — and the discount reaches the required margin of safety.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($56) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-17.9%/year) than we project (6.0%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$0.9 bn of owner earnings in year 5 (vs ~$3.1 bn of our base case). It recalculates if the DCF assumptions are edited.

A regulated utility is valued on P/E over adjusted earnings (equity-level): the value sits in the regulated base (rate base), which grows with capex at an allowed ROE. GAAP can be depressed by the mark-to-market of hedges → the adjusted figure is used. It returns capital via dividend (a dividend aristocrat); it may issue some equity to fund capex. Total return adds the dividend collected along the way. In edit mode, the metric, shares, dividend, and exit multiple can be adjusted.

Year 0 (TTM) is re-based to 30-Jun-2026 from the 8-K of 30-Jul-2026 (Item 2.02), which reports results later than the last figure ingested by XBRL (31-Mar-2026). The level of GAAP TTM net income ($3.745bn) is distorted by non-recurring recoveries from the TKM and Woolsey wildfire settlements recognized in 2025 (~US$2.9bn of net reversal in operating income). That is why the path uses the core (non-GAAP) earnings that Edison International itself reports and reconciles against GAAP in every release: year 1 starts from the 2026 core EPS guidance reaffirmed on 30-Jul-2026 ($5.90 floor, $6.05 midpoint, $6.20 ceiling), and long-term growth (5-7% a year 2025-2030) is explicit company guidance, supported by SCE's regulated rate base growing at ~7%/year. The share count grows modestly (ATM issuance to fund the US$40.6bn 2026-2030 capex plan while maintaining the authorized 52% common equity ratio); there is no material repurchase of common shares.

Today's multiple compresses on its own going forward as the metric per share grows. The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—. Total return adds the dividend collected; the required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $121 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $56, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $121 in 5 years plus $21 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $115. Against the current market price ($56), the margin of safety is 51.8% (trades below the maximum → there is margin) and the total return at that price would be 22.4% annually.

• Multiple below the sector band. Implied P/E 9× TTM core vs. a utility band of 15-18x, a discount not observed among peers without material wildfire litigation.
• Elevated dividend yield. ~5.2% on the current price, above the sector average, consistent with the risk discount the market demands.
• Sensitivity to litigation outcome. The base case assumes litigation risk is over-discounted, not resolved; if it materializes negatively, the multiple may fail to normalize.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✕ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (113%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Return on capital vs. the 10% bar. Authorized ROE of 10.03% (2026-2028), just above the method's quality bar; not a business of exceptional returns, but of stable contractual returns.
• Predictability of regulated cash flow. High, due to rate decoupling and cost balancing accounts, except for the non-recurring volatility of wildfire charges.
• Accounting distortion from wildfires. FY2025 GAAP earnings ($4.459bn) are heavily inflated by non-recurring recoveries under the TKM and Woolsey settlements; core earnings is the clean metric.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

EIX's drivers are not volume×price like a commercial business: they are those of a return-on-capital regulated utility — how much the approved rate base grows, at what ROE, and how much of that investment translates into core earnings once wildfire litigation costs and their rate recovery are netted out.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Explicit growth guidance. 5-7% core EPS growth 2025-2030, reaffirmed on Jul 30, 2026 along with specific 2026 guidance.
• Rate base as a quantifiable engine. ~7%/year growth in the regulated base, backed by a $40.6bn capex plan already filed with the regulator.
• Dependence on regulatory approval. Growth depends on the CPUC approving cost recovery on capex; there was already a partial cut in the 2025 GRC (transportation electrification).

• Regulated and predictable business model. Guaranteed return on the rate base, decoupled from volume sold; high structural predictability of the revenue stream.
• Geographic concentration in California. The entire operation is in a single state with an idiosyncratic regulatory and wildfire-liability framework.
• Regulated monopoly position. No structural competition in transmission/distribution within its service territory.
• Exposure to wildfire litigation. A material and active tail risk (Eaton Fire, bellwether trial January 2027) not present in most comparable utilities.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Regulated return (earned vs allowed ROE)Earns 9.6% vs allowed 10.0%
• !Value creation (allowed ROE − 10% bar)+0.0pp
• ✓Leverage (net debt / EBITDA)4.7x
• ✓Predictability (% regulated + rate-base growth)100% regulated · rate base +$8.1 bn/year

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Leverage. Net debt to normalized EBITDA estimated at ~4.7x, elevated but within what is typical for a utility with an intensive capex program.
• Authorized capital structure. 52% common equity / 43% long-term debt / 5% preferred, within the range the CPUC recognizes for the return calculation.
• Access to capital markets. The 10-K itself discloses that the cost of market access has already risen due to California wildfire risk.
• Short-term liquidity. Cash and equivalents very limited ($242mn as of June 2026) against a $96bn balance sheet; the utility operates on credit lines and market access, not excess cash.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Executive continuity. CEO since 2016, with continuity throughout the entire wildfire litigation cycle since 2017.
• Reporting transparency. Explicit and consistent GAAP-to-core earnings reconciliation in every quarterly release.
• Declared skin in the game. The proxy does not explicitly break out the aggregate percentage held by directors and executives in the available sections; this remains a declared gap, not an invented figure.

• Motivated sellers: the Eaton Fire (January 2025) generated ~1,500 unresolved lawsuits and an associated GAAP charge, pushing headline-sensitive investors to exit without waiting for the litigation to be resolved.
• Missing buyers: California's strict-liability wildfire risk is sector-idiosyncratic and discourages generalist utility investors who prefer to avoid it entirely rather than quantify it.
• Noise from a heavily distorted GAAP figure: GAAP net income jumped to $4.459bn in FY2025 from non-recurring recoveries under the TKM and Woolsey settlements, making it harder to read the real core earnings behind the headline.

The multiple discount (implied P/E 9× vs. a utility band of 15-18x) is consistent with a perception of litigation risk worse than the regulatory reality: the Wildfire Fund and the liability cap limit exposure to 20% of the equity portion of the T&D rate base for the ignition year, and the authorized 2026-2028 ROE (10.03%) is already set. The disconfirmer is if the January 2027 bellwether trial confirms liability above that coverage.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at +17%/year (+119% total): the margin of safety protects the downside. The bull (+26%/year, +221% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Wildfire litigation. Central tail risk: strict liability under the substantial-cause standard, with the Eaton Fire bellwether trial in January 2027.
• Wildfire Fund depletion. The legislative fund that caps SCE's exposure could be depleted by claims from other participating utilities.
• Regulatory cost-recovery risk. The CPUC already denied part of the advance funding requested in the 2025 GRC; not every investment is automatically recovered.
• Rate affordability pressure. Rate increases to fund wildfire mitigation generate political resistance that could limit future cost recoveries.
• Credit rating risk. A downgrade could raise the funding cost of the $40.6bn capex plan and force more dilution than projected.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  Fails the quality gate: ROE barely matches the 10% bar (the market's opportunity cost), no excess return.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 6% at a PEG of 1.5 → reasonable for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Not applicable — the Magic Formula excludes financials and regulated businesses (EBIT/EV does not capture the operating leverage).

• Howard Marks Perception vs reality + cycle

  The price discounts -18% vs our 6%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor +11%/yr, bull-scenario ceiling +21%/yr over 5y and a +52% margin → capital protected, asymmetry in your favor.

• Pat Dorsey Moat strength (Five Rules)

  A wide moat, stable; sources: intangibles, efficient scale, cost advantage, switching costs → passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -18%, within what we project (6%) — the story squares with the numbers.