Jefferies says market overestimating Edison wildfire exposure

Jefferies analyst Paul Zimbardo says shares of Edison International (EIX) dropped 10% on Wednesday with the market effectively assuming full responsibility for the catastrophic Los Angeles fires at the damage liability cap, subject to fund availability. The firm, however, believes the market is overestimating Edison’s exposure due to the Assembly Bill 1054 legislative protections. The bill established a liability cap at 20% of the electric equity rate base and a $21B claim paying fund for wildfires with reimbursement based on prudency, the analyst tells investors in a research note. Jefferies says Edison disclosed a $3.9B 2024 liability cap and it estimates $4.5B for 2025. On an after-tax basis this implies $3.2B liability, the firm points out. It believes the risk for shares is if liabilities for these and other fires breach the fund size, requiring incremental funding. “From an investor perspective, the most unfortunate part is that EIX and California broadly had a relatively quiet period without catastrophic wildfires that came to an end,” Jefferies contends. Edison did not file an incident report to date which is a favorable data point, the firm adds. It keeps a Buy rating on the shares with a $93 price target