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Market Price (7/27/2017): $79.22/share; ST-Target: $100/share; NIV: $168/share
Strong 1Q17 results were partially offset by weaker than expected 2Q17, but management is showing confidence by raising 2017FY AEPS guidance by about $0.09. Entered into settlement discussions for 2018 GRC, but dual-tracking litigation process. Strong execution, strategic evolution and focus on core strengths makes for attractive investment. Strategically, we like focus on utility projects with minimal distractions. Final decision on cost of capital proceedings were reasonable with ROE of 10.30% down 0.15%. Renewable integration’s challenging but no big surprises, yet. DC tax plan should be favorable: Likely both direct and indirect benefits. High growth likely to continue beyond 2020. Dividend payout ratio has caught up to earnings power of SCE logging-in at some 51%. We look for continued high capex spending on transmission, distributed generation, electric vehicle (EV) infrastructure, select renewable generation, energy storage, energy efficiency and grid modernization. LT investments should drive LT AEPS CAGR above 7%-9% forecast range, in our opinion. We’d support decision to sell SoCore Energy, and like expansion of energy advisory and service business at Edison Energy.