Mizuho Upgrades PG&E, Expects Bankruptcy Deal By June Deadline

PG&E Corporation PCG shares bounced more than 4% on Tuesday after the stock landed a big Wall Street upgrade.

The Analyst

Mizuho analyst Paul Fremont upgraded PG&E from Neutral to Buy and raised his price target from $21 to $22.

The Thesis

At this point in PG&E’s bankruptcy process, it has reached agreements with all the parties involved other than the Governor of California. On Tuesday, Fremont said California and the other parties have too much on the line not to do whatever it takes to complete a viable reorganization plan by PG&E’s looming June 30 deadline.

Mizuho had previously been concerned PG&E’s exposure to the 2019 Kincade wildfire could potentially derail the bankruptcy process. Fremont said PG&E’s worst-case scenario exposure to the Kincade fire is only $1.65 billion, of which roughly $1 billion would be covered by insurance.

Fremont also updated his financial targets for PG&E over the next three years. Mizuho is now calling for 2020/2021/2022 EPS of $1.29/$1.36/$1.43.

“Our just-added 2022 EPS estimate of $1.43 includes $24.5B of wildfire damages, funding obligations associated with the California wildfire fund and $16.5B of equity funding this year,” Kincade wrote in a note.

Even at a 25% earnings multiple discount to peers, he said the stock has significant upside potential from current levels. At around $14.58 on Tuesday, PG&E is trading at a forward earnings multiple of roughly 11.3 based on Mizuho’s new estimates.

Benzinga’s Take

Tuesday is just another volatile trading day for PG&E stock as it navigates an extremely complicated bankruptcy. Patient investors may ultimately be rewarded for hanging on for the ride, but the timing and magnitude of further potential upside is contingent upon PG&E’s structure and balance sheet as it ultimately emerges from bankruptcy.

Do you agree or disagree with these predictions? Email feedback@benzinga.com with your thoughts.

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