Shares of PG&E Corporation (PCG) hit a 52-week high of $48.64 on Jun 20. In fact, this San Francisco, CA based utility has seen its stock price climb 19.6% since the beginning of the year. This price appreciation can be attributed to a solid portfolio of regulated utility assets as well as its electricity distribution and transmission projects.
Why the Bullishness?
PG&E Corporation’s regulated utility assets offer a stable earnings base and substantial long-term growth potential. The company strives to optimize generation margins by improving its cost structure through its primary operating unit, Pacific Gas and Electric Company, in northern and central California.
The company has a number of investment projects aimed at upgrading or expanding its infrastructure. Under its capital spending program, PG&E plans to invest $5–$6 billion in 2014, a major portion of which is apportioned to electricity distribution and transmission projects. These are expected to earn rate-based growth at PG&E.
In late 2013, PG&E Corporation, MidAmerican Transmission LLC, and Citizens Energy Corporation were selected by the California Independent System Operator (:CAISO) to construct a new 70-mile transmission line. Moreover, the company replaced around 100,000 feet of underground cable, mainly in San Francisco and East Bay, 100,686 feet of overhead wire, and installed or replaced 19 distribution substation transformer banks.
Again, PG&E generates over 50% of its power from non-polluting energy sources, like nuclear. As far as gas projects are concerned, the company completed the Centerline survey of its entire gas transmission system in 2013. It also delivered 17,030 gigawatt-hour of electricity though renewable fuel-based generation facilities last year. This will help the company to meet the increasingly stringent renewable standards.
Though the company displayed mixed financial results in the first quarter 2014, we are hopeful that its constant gas and electric infrastructure upgrade efforts will lend stability to its earnings stream.
In the first quarter of 2014, PG&E missed the earnings expectation primarily because of the delay in rate relief related to its 2014 general rate case (GRC). Once the GRC is decided, rates will be retroactive to Jan 1, 2014,thereby enabling the company to recover its costs incurred year to date..
Other Stocks to Consider
PG&E currently has a Zacks Rank #3 (Hold). However, Companhia Paranaense de Energia (ELP), Entergy Corp. (ETR) and NRG Energy Inc. (NRG), all with a Zacks Rank #1 (Strong Buy), are good investment bets in the utility space.