Edison International's Q4 Earnings Boosted by Recovery, But Wildfire Overhang Remains

What happened

Edison International is set to release Q4 earnings with a $902 million retroactive recovery and higher authorized returns, as reported by Zacks, which should provide a near-term lift to revenue and earnings growth. This recovery fits within the pattern of regulatory settlements for past wildfires, such as the TKM and proposed Woolsey settlements, which the DeepValue report notes have offered partial cost-sharing but also locked in shareholder haircuts. However, the DeepValue report highlights that EIX still faces substantial unresolved wildfire liabilities, particularly from the Eaton Fire, and maintains a BBB- credit rating with a negative outlook due to Wildfire Fund depletion concerns. While the $902 million recovery is positive, it is relatively minor compared to the $11.4 billion in cumulative wildfire losses and does not address the structural tail risks from California's inverse condemnation and potential policy shifts. Thus, the DeepValue master report retains a 'WAIT' rating with an attractive entry at $55, advising investors to await clearer resolution of wildfire exposures and rating stability.

Implication

The $902 million retroactive recovery will enhance EIX's near-term financial performance, supporting its guided mid-single-digit core EPS growth and potentially providing a temporary stock uplift. Yet, this recovery is dwarfed by the multi-billion-dollar uncertainties surrounding the Eaton Fire and other liabilities, where recovery ratios and Wildfire Fund usage remain opaque, posing significant earnings and cash flow risks. Ratings agencies have already downgraded EIX to BBB- with a negative outlook, and any further deterioration could increase financing costs, constrain capital allocation, and threaten dividend sustainability. Key upcoming catalysts, such as the CPUC decision on the Woolsey settlement and detailed Eaton disclosures in the 2025 10-K, will be more pivotal in assessing long-term risk and should be closely monitored. Therefore, investors are better off waiting for a lower entry near $55, as recommended in the DeepValue report, to adequately compensate for the persistent wildfire tail risk before considering a position.

Thesis delta

The news of a $902 million retroactive recovery does not shift the core investment thesis, as it aligns with the existing regulatory cost-sharing framework and does not resolve the larger wildfire liabilities or rating pressures highlighted in the DeepValue report. It reinforces that near-term earnings gains are possible, but the fundamental 'WAIT' rating remains unchanged until clearer evidence emerges on Eaton recoveries and credit stability.