Analyst Cuts PG&E Price Target By 82%, But Still Sees Some Value

The announcement that California utility company PG&E Corporation (NYSE: PCG) is preparing for bankruptcy sent shares of the battered stock tumbling more than 62 percent this week. However, one Wall Street analyst said Friday there may still be value in the stock.

The Analyst

RBC Capital Markets analyst Shelby Tucker reiterated his Sector Perform rating for PG&E and cut his price target from $45 to $8.

The Thesis

Tucker said it’s surprising PG&E has opted for voluntary bankruptcy prior to the state of California determining fault for the Tubbs and Camp wildfires. Earlier this month, PG&E indicated it would have roughly $30 billion in liability from the wildfires.

Tucker said Friday the size and complexity of potential wildfire-related claims could make a potential bankruptcy process extremely drawn-out.

Even after all the negative headlines, Tucker still sees value in RBC shares. After discounting PG&E’s recent peak market cap of $37 billion by 25 percent and factoring in $24 billion in post-tax wildfire liabilities, he said there’s still roughly $5 billion in remaining equity value in PG&E, or about $8 per share.

“We lack confidence in our estimates surrounding the potential liabilities and the risk of bankruptcy,” Tucker said.

On Thursday, PG&E investor BlueMountain Capital said a bankruptcy filing may not be necessary.

“At the very least, the board should wait to take its case to shareholders at the upcoming annual meeting,” BlueMountain said in a letter to PG&E’s board. The annual shareholder meeting is scheduled for May 22, but PG&E has said it intends to file for bankruptcy by January 29.

Price Action

PG&E's stock traded higher by 10 percent to $7.01 per share Friday morning, but remains down 86 percent overall in the past three months.

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