PG&E Analyst Sees Buying Opportunity In Bankrupt California Utility's Shares

Shares of PG&E Corporation PCG are trading at just the right price, between the utility's rights offering and the equity backstop, which creates a “significant opportunity” for shareholders, according to Mizuho Securities.

The PG&E Analyst

Paul Fremont maintained a Buy rating on PG&E and raised the price target from $12.50 to $13.50.

The PG&E Thesis

The two scenarios — the rights offering and the equity backstop — have a share count difference of 400 million, which equates to a 25-cent-per-share difference in Mizuho’s earnings estimate for 2022, Fremont said in a Wednesday note. 

“Whether valuing on our base-case backstop equity assumption or on a higher rights-offering earnings level, we continue to see significant upside in PG&E valuation,” the analyst said. 

The base-case assumption translates to an earnings estimate for 2022 of $1.04 per share, meaning that the shares are trading at a 30% discount, he said.

The rights offering leads to an estimate of $1.30 per share, suggesting that the stock is trading at a 45% discount, Fremont said. 

PG&E Corp seems to be on track to emerge from bankruptcy on or before June 30, the analyst said, adding that the next key milestone will be the outcome of voting on the company’s reorganization plan.

PG&E filed a request to securitize $7.5 billion of wildfire costs with the CPUC on April 30, according to Mizuho. 

PCG Price Action

Shares of PG&E were down 2.54% at $11.51 at the time of publication Wednesday. 

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