Edison International (EIX) is a utility holding company for Southern California Edison, an electric utility business that provides electricity to 5 million customers across Southern, Central, and Coastal California.

Founded in 1886, Edison International is now a $21 billion (by market cap) utility giant that employs more than 13,000 people.

SCE is their main operating segment.

Investing in a utility business such as Edison International is always a pretty straightforward affair with a simple investment thesis.

The thesis is that modern-day society cannot function without reliable access to power. We basically can’t live without electricity. There is a captive consumer base in place because of this.

Thus, utility companies that can meet this inherent and unflinching demand for power tend to prosper. And since there is often only one major utility provider in any single geographic area, these businesses further benefit from their monopolistic characteristics.

All of this is true for Edison International, giving their business model a powerful one-two punch. And this bodes well for their ability to continue increasing their profit and their dividend over the long run.

As it stands, they’ve increased their dividend for 18 consecutive years. Their 10-year dividend growth rate of 7.3% is uncommonly high for a utility business, which is impressive.

However, more recent dividend raises have been in the 4%-5% range.

The stock’s P/E ratio is only 12.21. Now, that’s based on core EPS.

So the stock looks cheap when looking at basic valuation metrics. But how cheap might it be? What would a rational estimate of intrinsic value look like?

I valued shares using a dividend discount model analysis.

I factored in a 9% discount rate (due to the elevated yield) and a long-term dividend growth rate of 4.5%.

This DGR is on the lower end of what I usually allow for when looking at a utility.

However, I think this is a realistic take on the business.

Recent dividend raises have been in this range. The long-term EPS growth rate is around 4%. And based on CFRA’s near-term revenue growth projections, EPS should continue to grow in the mid-single-digit range.

With the payout ratio being moderate, I see this as a reasonable expectation for future dividend growth.

The DDM analysis gives me a fair value of $61.54.

I don’t view my valuation as aggressive at all, yet the stock still looks cheap.

But we’ll now compare that valuation with where two professional stock analysis firms have come out at.

This adds balance, depth, and perspective to our conclusion.

Morningstar, a leading and well-respected stock analysis firm, rates stocks on a 5-star system.

1 star would mean a stock is substantially overvalued; 5 stars would mean a stock is substantially undervalued. 3 stars would indicate roughly fair value.

Morningstar rates EIX as a 4-star stock, with a fair value estimate of $70.00.

CFRA is another professional analysis firm, and I like to compare my valuation opinion to theirs to see if I’m out of line.

They similarly rate stocks on a 1-5 star scale, with 1 star meaning a stock is a strong sell and 5 stars meaning a stock is a strong buy. 3 stars is a hold.

CFRA rates EIX as a 3-star “HOLD”, with a 12-month target price of $63.00.

I came out on the low end. Averaging the three numbers out gives us a final valuation of $64.85, which would indicate the stock is possibly 14% undervalued.

Bottom line: Edison International (EIX) is an easy-to-understand utility business offering a necessary service to millions of captive customers. With a market-smashing 4.7% yield, nearly 20 consecutive years of dividend raises, a moderate payout ratio, inflation-beating growth, and the potential that shares are 14% undervalued, this is an under-the-radar stock for dividend growth investors to take a serious look at.

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