Edison International Stock Resumes Drop Pre-Market Amid California Wildfire Concerns: Retail Sentiment Hits Year Low
By Stocktwits Inc | First Published Jan 10, 2025, 7:31 PM ISTCalifornia wildfires have reignited liability concerns for utilities like Edison, but analysts argue the market is overestimating exposure.
Edison International Inc. (EIX) stock fell nearly 3% in pre-market trading on Friday as wildfires continued to spread in the Los Angeles area, raising concerns about potential liability for the utility company.
As of Wednesday's close, Edison International shares had already dropped 13.9% for the week.
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The selloff began after wildfires broke out in Southern California on Tuesday and worsened on Wednesday due to high winds.
Southern California Edison (SCE), the utility owned by Edison International, reported that 327,654 customers were without power as of Thursday morning, according to its website.
While public utilities in California have faced scrutiny in the past over wildfire prevention, there is currently no public information linking Edison International's equipment to the fires.
Wall Street analysts largely view the selloff of Edison International's stock as an overreaction. Wells Fargo noted that although the wildfires are weighing heavily on Edison's stock, the absence of an incident report is a "definitive positive," suggesting no evidence of equipment involvement.
Jefferies analyst Paul Zimbardo highlighted that the market is pricing in worst-case liability scenarios for Edison.
He believes Wednesday’s 10% drop occurred with investors assuming the company may face damages up to the liability cap established by Assembly Bill 1054.
This legislation set a liability cap at 20% of the electric equity rate base and created a $21 billion wildfire fund to reimburse utilities if they are found to have acted prudently. Jefferies estimates a $3.9 billion liability cap for 2024 and $4.5 billion for 2025, implying a $3.2 billion after-tax liability in the event of responsibility.
However, the brokerage maintained its ‘Buy’ rating on Edison, with a price target of $93, and said the market may be overestimating Edison’s exposure.
Morgan Stanley, which holds an ‘Underweight’ rating on Edison and a $71 price target, observed that the most destructive wildfire, the Palisades Fire, does not appear to involve Edison equipment.
However, the brokerage cautioned that several fires have ignited near utility facilities, and investors should monitor potential incident reports from Edison.
Meanwhile, retail sentiment on Stocktwits dipped to its lowest in a year in the ‘extremely bearish’ (7/100) zone – a complete flip from ‘extremely bullish’ a day ago.
One retail investor on the platform believes that Edison International will likely get blamed for the fires.
Another user said he’s taking the opportunity to buy more shares and is anticipating a clean chit for Edison International.
California utilities remain under heightened scrutiny due to the state’s history of wildfire-related liability. PG&E (PCG) stock was down over 2% in pre-market trade on Friday, while Sempra Energy (SRE) tumbled around 1%.
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