By Avi Salzman
Officials haven't determined what triggered the wildfires that have destroyed parts of Los Angeles, but one utility stock appears to be shouldering much of the blame already.
Shares of Edison International, which has operations in some of the areas that have burned, fell 10% to $69.50 on Wednesday. That shaved $3.1 billion off the company's market capitalization, according to Jefferies analyst Paul Zimbardo.
But Zimbardo said in a research note on Thursday that California state law caps wildfire damage costs for utilities, and that the after-tax liability cap for Edison would be $3.2 billion, essentially the same as the stock- price drop. Noting that he was using preliminary information, he said he believes "the market is overestimating the exposure."
He rates the stock at Buy with a $93 price target. The market was closed in memory of former President Jimmy Carter on Thursday.
It may be weeks before authorities figure out what caused the Palisades fire and other devastating blazes that have engulfed Los Angeles over the past few days. Past fires have had severe financial impacts on utilities. PG&E filed for bankruptcy protection in 2019 because of costs associated with wildfires in Northern California that the state blamed on the utility.
Edison International said in a press release Wednesday that it doesn't serve the Palisades area, where one of the largest fires occurred. But it does have some infrastructure around the sites of the Hurst and Eaton fires and is reviewing the incidents.
A state law passed in 2019 capped a utility's liability at 20% of its transmission and distribution rate base, and established an insurance fund to pay for utility costs. The fund had amassed $11 billion as of last year, but some estimates of the damage from the current fires already exceed that number.
The weather forecasting site AccuWeather said the potential damage and economic loss could range from $52 billion to $57 billion.
Write to Avi Salzman at avi.salzman@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
January 09, 2025 17:27 ET (22:27 GMT)
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