PG&E Corporation PCG stock bounced back to life Wednesday following some bullish commentary from Wall Street after a disastrous start to the week.
Bank of America analyst Julien Dumoulin-Smith reiterated his Buy rating for PG&E but cut his rice target in half from $44 to $22.
CNBC reported Monday the company could face a minimum of $30 billion in liabilities related to California wildfires in 2017 and 2018, citing unnamed sources. The CNBC report followed a Reuters story over the weekend suggesting the utility is considering a bankruptcy filing and will potentially be taking a major financial charge in Q4.
After Monday's close, S&P Global cut PG&E Corp’s credit rating from BBB- to B, a move that drops the company’s debt from investment grade to “highly speculative” non-investment grade, or “junk” status.
According to Dumoulin-Smith, PG&E shareholders face extreme risk due to the probability of a bankruptcy filing, but the company’s underlying fundamentals outside of its wildfire liabilities are sound. Despite the bankruptcy fears, Dumoulin-Smith said the state of California will likely prefer a different route.
“We believe California leadership understands the broader translation of higher cost of capital to ratepayers is likely worse via a bankruptcy rather than a tangible financing solution for current wildfire liabilities, based on Governor Newsom’s comments yesterday,” he wrote in Wednesday's note.
He said the risk-reward balance is favorable for investors ahead of the critical Jan. 10 California Public Utilities Commission meeting that will address PG&E’s liability problems.
PG&E recovered by 9 percent Wednesday to trade at $19.10 per share, but the stock remains down 60 percent in the past three months.
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