This Analyst Is Bullish On PG&E Following Stock Deal With Wildfire Victims

PG&E Corporation PCG held up relatively well on Monday morning after the company agreed to a new deal with the Official Committee of Tort Claimants (TCC) related to percentage ownership of the Fire Victim Trust.

What Happened: PG&E agreed to a deal giving the fire victims trust a 22.19% pro-forma ownership stake in the reorganized utility after it emerges from bankruptcy and a 90-day lockup period for shares the company’s marketed stock offering.

On Monday, Bank of America analyst Julien Dumoulin-Smith said the 2021 normalized estimated net income (NENI) of the 22.19% stake in the fund is roughly $2.042 billion, in-line with previous estimates of $2.046 billion.

Why It’s Important: Dumoulin-Smith said the wildfire victims’ deal is now solidified, eliminating another uncertainty from the PG&E story as the company works to emerge from bankruptcy.

“While selling pressure from victims remains a consideration post lock-up, the group will have $6.75bn in cash and will likely be incentivized to wait for valuation to recover in order to maximize the value of their share ownership,” Dumoulin-Smith wrote in a note.

As a result of the latest developments, Bank of America cut its PG&E price target from $14 to $12.20, but the firm maintains a Buy rating on the stock.

What’s Next: Dumoulin-Smith said PG&E will likely take the next step with its equity raise in mid to late June. In the meantime, the company’s exposure to equity market swings will likely create extreme volatility in the stock, Dumoulin-Smith said.

Benzinga’s Take: Finalizing a deal with victims is another major step in the right direction for PG&E investors. However, the terms of the upcoming $9 billion PG&E equity offering are still unknown and will have a major impact on the value of PG&E shares moving forward.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

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Photo credit: Frank Deanrdo, Flickr