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Analyst Cuts PG&E Price Target By 50%, Remains Bullish On Underlying Fundamentals

Wayne Duggan

PG&E Corporation (NYSE: PCG) stock bounced back to life Wednesday following some bullish commentary from Wall Street after a disastrous start to the week.

The Analyst

Bank of America analyst Julien Dumoulin-Smith reiterated his Buy rating for PG&E but cut his rice target in half from $44 to $22.

The Thesis

CNBC reported Monday the company could face a minimum of $30 billion in liabilities related to California wildfires in 2017 and 2018, citing unnamed sources. The CNBC report followed a Reuters story over the weekend suggesting the utility is considering a bankruptcy filing and will potentially be taking a major financial charge in Q4.

After Monday's close, S&P Global cut PG&E Corp’s credit rating from BBB- to B, a move that drops the company’s debt from investment grade to “highly speculative” non-investment grade, or “junk” status.

According to Dumoulin-Smith, PG&E shareholders face extreme risk due to the probability of a bankruptcy filing, but the company’s underlying fundamentals outside of its wildfire liabilities are sound. Despite the bankruptcy fears, Dumoulin-Smith said the state of California will likely prefer a different route.

“We believe California leadership understands the broader translation of higher cost of capital to ratepayers is likely worse via a bankruptcy rather than a tangible financing solution for current wildfire liabilities, based on Governor Newsom’s comments yesterday,” he wrote in Wednesday's note.

He said the risk-reward balance is favorable for investors ahead of the critical Jan. 10 California Public Utilities Commission meeting that will address PG&E’s liability problems.

Price Action

PG&E recovered by 9 percent Wednesday to trade at $19.10 per share, but the stock remains down 60 percent in the past three months.

Related Links:

PG&E Continues Fall After Credit Rating Cut To Junk Status

PG&E Stock Slammed Following Reports Of Massive Wildfire Liability, Potential Bankruptcy

Latest Ratings for PCG

Date Firm Action From To
Jan 2019 Bank of America Maintains Buy Buy
Jan 2019 Mizuho Maintains Neutral Neutral
Jan 2019 UBS Maintains Neutral Neutral

View More Analyst Ratings for PCG
View the Latest Analyst Ratings

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