PG&E Analyst Upgrades Stocks As Utility Positions To Emerge From Bankruptcy

PG&E Corporation (NYSE: PCG) shares traded higher by 7% on Monday after the company reported a major jump in first-quarter earnings on Friday and detailed a plan to replace 11 of its 14 board members once it emerges from bankruptcy.

The latest news was well-received by the market, and it even landed PG&E an upgrade on Monday.

The PG&E Thesis

UBS analyst Daniel Ford upgraded PG&E's stock from Neutral to Buy and raised his price target from $14 to $15. Ford said PG&E seems well-positioned to emerge from bankruptcy in the near future.

“PCG has secured most of what is required to receive plan confirmation by June 30 in order to participate in the California wildfire fund and to benefit from legislation's liability reform,” Ford wrote in a note.

Ford said PG&E should be able to hit its five-year target of 7% to 8% base rate growth, and the company’s income growth could grow at an even higher rate. At this point, Ford said the stock has a four-to-one upside/downside skew with limited potential downside due to an equity backstop commitment.

Other PG&E Analysts Weigh In

Wells Fargo analyst Neil Kalton said PG&E investors are finally seeing the light at the end of the bankruptcy tunnel. But while California has established a wildfire fund to help mitigate future liability risk for utilities like PG&E, Kalton said there will still be risks for investors.

“In our view, while utility caused wildfire events will likely decrease over time given substantial ongoing mitigation efforts (pre-emptive public safety power shutoffs, wildfire-related investments, etc.), the risk remains substantial,” Kalton wrote.

Wells Fargo has an Equal-Weight rating and $12 price target for PG&E.

Bank of America analyst Julien Dumoulin-Smith said PG&E’s long-term financial projections remain on track.

“Given earnings normalize more in ’22 we perceive shares appear optically cheaper on ’21 P/E in which the equity raise is tied to, although recognize the market has yet to formally shift to 2022 just yet,” Dumoulin-Smith wrote.

Benzinga’s Take

It seems increasingly clear that PG&E will hold some value once it emerges from bankruptcy. However, there are still plenty of questions about what the “new normal” will be for California utilities moving forward and how that will impact PG&E’s stock price.

PG&E traded around $10.91 per share at time of publication

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

Related Links:

Here's How Much Investing $100 In PG&E Stock Back In 2010 Would Be Worth Today

How Large Option Traders Are Playing PG&E Ahead Of Critical Bankruptcy Deadline

A PG&E yard in San Francisco. Photo by Peter Merholz via Wikimedia.