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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.
The Analyst
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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).
The Thesis
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.
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“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.
Price Action
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.
Related Links:
Citi Upgrades PG&E, Raises Price Target By 200%
Well Fargo Downgrades Edison International On Liability Legislation Pessimism
Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.