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Why Edison International Stock Rose 10% in October

By Reuben Gregg Brewer – Nov 3, 2020 at 1:50PM

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Shares of the California-based utility company rose in October, but the story is a bit more complicated than it seems.

What happened

Shares of electric utility Edison International (EIX 1.11%) rose 10% in October according to data from S&P Global Market Intelligence. The shares started to move higher on Sept. 23 and had gained roughly 23% by the time they peaked on Oct. 23. After that, the stock started to give back some gains, falling roughly 7% from the peak through the end of the month.  

So what

The news that appears to have sparked the rally in September was that Southern California Edison (SCE), an Edison International subsidiary, reached a settlement agreement over insurance subrogation claims related to the 2017 Thomas and Koenigstein fires and the 2018 Montecito mudslides. SCE has been dealing with these complex issues for several years and getting at least some of the legal and financial claims settled is pretty big news. That said, there are still more claims to be dealt with over these events and the 2018 Woolsey Fire, according to the company. This is a complex and ongoing issue.  

A man with power lines in the background.

Image source: Getty Images.

Regardless, investors were clearly pleased with that update and pushed Edison International's stock higher. The shares of the utility stock peaked almost exactly a month later and just a few days shy of the company's third-quarter earnings update on Oct. 27. Although underlying results were solid, earnings included a $2.33 per share charge at SCE for the above-mentioned events. And during Edison International's third-quarter earnings conference call, management noted that SCE might have some involvement in the fires currently impacting California. Those fires have been raging for a little while now, so it's not surprising that investors dimmed on Edison International and shares fell through the end of the month. The comments during the conference call, while preliminary, certainly didn't calm investors' nerves.  

Now what

Edison International and its SCE subsidiary are dealing with a lot of uncertainty regarding the wildfires. And the costs can end up being material. All in, Edison International is not your typical utility stock and certainly not a conservative investment. You need to clearly understand what you are getting into here if you decide to jump aboard this stock.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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