BofA Securities analyst Ross Fowler has taken a bullish stance on three California utilities, Edison International (EIX), Pacific Gas & Electric (PCG), and Sempra (SRE), reinstating Buy ratings on all three. Fowler acknowledges the recent wildfire concerns that have plagued the state and impacted the utilities’ stock prices. However, he believes the situation presents an attractive entry point for investors.
Despite higher customer rates and concerns over affordability, Fowler argues that California’s mechanisms for managing wildfire risks are among the best in the nation. He highlights recent developments that have created a more favorable environment for these utilities, despite the recent Park fire, the largest wildfire currently burning in the U.S., which has ravaged over 426,000 acres in Northern California.
Focusing on EIX, Fowler sees a positive impact from the proposed settlement covering approximately 60% of wildfire liabilities. This settlement could significantly aid in the recovery from expenses related to the Woolsey fire. Additionally, he points out that as an electric-only California utility, EIX is well-positioned to benefit from the state’s electrification policy. For 2024, Fowler forecasts project EPS of $4.97, exceeding the consensus estimate of $4.94. His projections extend to 2025 and 2026, with EPS estimates of $5.63 (in line with consensus) and $6.09 (slightly higher than the street view of $5.99), respectively.
Turning to PCG, Fowler highlights the company’s transformation since its emergence from bankruptcy. He believes that PCG is evolving into a more regulated utility, with management effectively addressing past issues. While customer rates remain high, Fowler anticipates PCG to align more closely with its peers by 2026. His EPS projections for PCG are $1.37, $1.50, and $1.62 for 2024, 2025, and 2026, respectively, slightly exceeding consensus estimates in each year.
Lastly, Fowler notes that SRE’s performance is often overshadowed by its liquefied natural gas (LNG) operations. However, he emphasizes the value driven by the company’s regulated utilities in California and Texas. SRE’s capital plans are shifting earnings toward regulated sectors, while future LNG projects offer potential equity sell-down opportunities. Fowler projects EPS of $4.80, $5.16, and $5.67 for 2024, 2025, and 2026, respectively, generally aligning with or slightly exceeding consensus expectations.
Overall, Fowler’s bullish stance on these California utilities reflects his confidence in the state’s wildfire mitigation strategies and the utilities’ own efforts to adapt and improve their operations. With the regulatory environment evolving and investments in infrastructure continuing, these utilities are positioned for growth, according to Fowler.
