The long-term future for California utility stocks is riding on the state’s willingness and ability to reform inverse condemnation laws, according to a Wells Fargo analyst — and he's not hopeful.
Wells Fargo analyst Neil Kalton reiterated a Market Perform rating and $65 price target for Edison International (NYSE: EIX).
Kalton also reiterated a Market Perform rating and $20 target for PG&E Corporation (NYSE: PCG).
California utility investors hoping for a comprehensive inverse condemnation solution from the state in 2019 will likely be disappointed, Kalton said in a Sunday note.
The best solution would likely be switching standards from strict liability to a negligence standard, and any solution that falls short of that standard will leave the utilities exposed to a dangerous amount of risk, the analyst said.
The state could potentially meaningfully change wildfire liability laws in the coming months, but the chances of a legally binding resolution that get Edison and PG&E out of the woods appear slim, Kalton said.
“While we are encouraged by comments made by Governor Newsom that we think indicate a willingness to meaningfully address IC, we are not aware of any legislative momentum for a substantial fix."
In the meantime, both Edison and PG&E will continue to take large charges relating to wildfire liability.
Kalton’s EPS estimates for Edison and PG&E assume $4 billion and $10 billion in additional wildfire liabilities, respectively.
Wells Fargo is calling for EPS of $4.60 from Edison in fiscal 2019 and EPS of $3.80 from PG&E.
Edison shares were down 0.3 percent at the time of publication Monday and PG&E was up 0.34 percent following the latest commentary from Wells Fargo.
Citi Upgrades PG&E, Raises Price Target By 200%
Well Fargo Downgrades Edison International On Liability Legislation Pessimism
Latest Ratings for EIX
|Mar 2019||Bank of America||Upgrades||Underperform||Neutral|
|Feb 2019||Morgan Stanley||Maintains||Equal-Weight||Equal-Weight|
|Feb 2019||Wells Fargo||Downgrades||Outperform||Market Perform|
View More Analyst Ratings for EIX
View the Latest Analyst Ratings
See more from Benzinga
- Citi Upgrades PG&E, Raises Price Target By 200%
- Q4 13F Roundup: How Buffett, Einhorn, Ackman And Others Adjusted Their Portfolios
- Well Fargo Downgrades Edison International On Liability Legislation Pessimism
© 2019 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.