PG&E (PCG) investors were busy throwing a party yesterday. After a year-long investigation, the California Department of Forestry and Fire Protection has cleared PG&E of responsibility for the 2017 Tubbs Fire in Santa Rosa that destroyed thousands of homes and killed 22 people. PG&E’s stock nearly doubled after the announcement, amid questions over bankruptcy claims and damages from other fires.
The million dollar question: Will the Tubbs fire finding save the utility provider from bankruptcy? Guggenheim analyst Shahriar Pourreza weighs in:
“Bankruptcy becoming more premature as non-Tubbs (2017-2018) wildfire liabilities are in the $17B range, in our view, and that assumes claims at par value vs. historical precedence which yields a discount – refreshing our model (based on structural damage) and taking out liabilities associated with Tubbs (assuming 75% attributed to Tubbs). Running through the same math as we published in our 2019 outlook, and applying a 75% discount to 2017 liabilities, we arrive at a 2017 liability of $1.3B net of tax effects and ~$1B of insurance and a 2018 net liability of $15.8B for the Camp fire, which remains under investigation. With exoneration of the Tubbs fire, the total potential liability is reduced to $17.1B and presumably moved further into the future as valuation and certainty required to book losses is reduced, due to ongoing litigation for Camp fire. PCG has indicated in a press release that they will still be pursuing bankruptcy filing due to the company view of potential liabilities associated with damage claims. While we see the potential liabilities reduced from our prior estimates and cash flows remaining solvent, we admit that there are unknowns remaining related to both liquidity and future liabilities, so PCG bankruptcy remains a tangible possibility.”
Pourreza reiterates a Neutral rating on PG&E shares, without suggesting a price target. (To watch Pourreza’s track record, click here)
Street-wide caution circles the energy provider, as TipRanks analytics model PCG as a Hold. This boils down to 1 bullish analyst, 10 neutral, and 2 bearish in the last 3 months. Is PCG an undervalued or overvalued stock? Right now, analyst expectations align with levels where the shares last closed, with the 12-month average price target standing at $12.19. (See PCG’s price targets and analyst ratings on TipRanks)