Edison International

▲ Bull Case

• ◆Eaton resolves at the favorable end of distribution: CAL FIRE finding inconclusive or attributes to multiple causes; CPUC determines SCE acted prudently under AB 1054; Wildfire Fund covers $6–8B; net shareholder liability $1–2B. Multiple re-rates from 11x → 17x. Target: $105–$125.
• ◆2025 GRC outcome at or above guidance: CPUC approves $44B+ rate base; ROE maintained at 10.30% (or raised to 10.50% at the high end); full wildfire-mitigation capex allowed. Core EPS trajectory accelerates to consensus $6.58 by 2027.
• ◆No additional major SCE-caused wildfire through 2027: Covered-conductor program effectiveness confirmed (5,000+ HFRA miles by year-end 2025); HFRA ignition rate continues declining; the structural wildfire-discount narrows toward zero.

▼ Bear Case

• ◆Adverse CAL FIRE finding + adverse CPUC prudency determination: SCE equipment identified as primary ignition cause; Wildfire Fund covers only $2–3B (prudency denied); net shareholder liability $7–10B. Equity issuance of $2.5B (~+8% dilution) required. Target: $45–$60.
• ◆Second major SCE-caused wildfire in 2026 or 2027: Compounds Eaton; Wildfire Fund exhausted; credit rating cut to non-investment grade; dividend cut. Probability ~30% over the period before covered-conductor program completes full HFRA coverage in 2026–2028.
• ◆Interest rates spike + utility sector compression: 10-year Treasury sustained >5%; utility sector forward P/E (currently ~21.7x sector average) compresses; EIX's discount widens absolutely. Less likely (~15%) but a real risk overlay.

“The street is debating whether the market-implied $5–9B shareholder wildfire liability is accurate, too high, or too low. Bulls argue the market is over-weighting PG&E's 2019 outcome and under-weighting AB 1054 protections + Wildfire Fund mechanics; they see fair value at $90+. Bears argue the Wildfire Fund's $17B remaining capacity is insufficient if Eaton draws $10B+ and any additional event occurs, and that CPUC prudency findings are unpredictable; they see fair value at $50–$60. A secondary debate is whether consensus 2026E EPS of $6.18 is achievable given the historical ~80–130 bps earned-vs-authorized ROE gap — the model derives $4.91 bottom-up vs. consensus $6.18; the gap is material and explains why model fair values cluster lower than consensus-driven ones.”

• ◆CAL FIRE Eaton Fire causation report (Q4 2025–Q1 2026): ±20–30% stock impact — single most decisive catalyst
• ◆CPUC OII preliminary prudency ruling (Q2 2026): ±15–25% — determines Wildfire Fund eligibility path
• ◆Wildfire Fund eligibility determination (Q4 2025–Q2 2026): +10–20% if confirmed; unlocks favorable resolution scenario
• ◆2025 GRC final CPUC decision (Late 2025–Q1 2026): ±5–10% — ROE authorization and rate-base approval critical
• ◆Credit rating action (Q3–Q4 2025): ±5–15% — Moody's and S&P post-Eaton determination on investment-grade status
• ◆First major Eaton class-action settlement (Q3 2026–Q1 2027): ±15–20% — pins down shareholder liability range
• ◆2026 wildfire season outcome (Jun–Nov 2026): ±20–50% binary — no new SCE-caused fire validates covered-conductor mitigation thesis
• ◆EV load growth and data-center capex inflection (2027–2030): +10–15% structural tailwind — independent of wildfire resolution

• ◆Eaton Fire shareholder liability catastrophe: $5–15B PV at risk; outcome binary on CAL FIRE equipment findings + CPUC prudency determination
• ◆Second major SCE-caused wildfire (2026–2027): Existential risk if occurs; compounds Eaton liability; exhausts Wildfire Fund capacity
• ◆Wildfire Fund unavailability or insufficient payout: If eligibility denied or capped, adds $3–5B to net shareholder liability
• ◆Credit rating downgrade to non-investment-grade: Triggers covenant acceleration; forces $2–3B equity issuance; costs ~$0.65/share recurring
• ◆Forced equity issuance ($2–3B): 6–8% share dilution likely if Eaton liability breaches $8B threshold
• ◆CPUC adverse 2025 GRC outcome: ROE cut below 10% or rate-base capped; −$0.50–$1.50 recurring EPS impact
• ◆Interest-rate spike (10-year Treasury >5.5%): Utility sector forward multiple compression; −10–15% valuation impact
• ◆Dividend cut or suspension: Would signal severe distress; historical precedent (PG&E 2020) possible in catastrophic scenario
• ◆California regulatory deterioration or political backlash: Structural risk if future CPUC/legislature turns hostile to regulated utilities
• ◆CCA / distributed-generation load erosion: Modest risk (rate base fixed); potential partial margin compression in long term