Jefferies Raises Price Target on Edison International (EIX), EMG Should Keep Homer City

Jefferies is maintaining its Buy rating in shares of Edison International (NYSE: EIX) while raising its price target by $1 to $42.

The firm agrees with management that the company should preserve the option value of the EMG business, but also sees that the negative EPS at EMG in the next several years present an overhang for investors. Jefferies notes that the worst case scenario is that the company walks away from its merchant business.

An analyst at Jefferies comments, "In 2012 and 2013 projected negative EBITDA of Homer City would put additional pressure on EMG’s EV/EBITDAR valuation due to the expected high SO2 allowance costs and lower run times. Assuming the installation of scrubbers in 2014, the EMG would be better off keeping Homer City. A critical factor is whether lease equity is willing to inject new capital to fund the necessary environmental upgrades. Without this new capital Homer City may find itself in bankruptcy."

For 2011-2014, Jefferies estimates EPS of $2.85, $2.35, $2.45, and $3.45.

For more ratings news on Edison International click here and for the rating history of Edison International click here.

Shares of Edison International closed at $36.27 yesterday.

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