BofA Raises PG&E Target On Potential Debt Paydown

Shares of PG&E Corporation PCG tumbled last week on the company’s equity issuance at $9.50 per share to fund its exit from bankruptcy.

Management is unlikely to announce another equity issuance, unless the stock appreciates meaningfully from the current lows, according to BofA Securities.

The PG&E Analyst

Julien Dumoulin-Smith maintained a Buy rating for PG&E, while raising the price target from $10.70 to $11.

The PG&E Thesis

Following last week’s announcement, the Street has been debating about whether PG&E will need another equity issuance in 2021, Dumoulin-Smith said in the note.

Due to “conservatism,” the BofA estimates assume that the company raises another $1 billion at $11 per share in 2021.

There is “a clear trade-off between issuing incremental equity at depressed prices and slowing down the pace of HoldCo debt paydown,” and management is unlikely to issue new equity at the current depressed levels, the analyst wrote.

PG&E’s projections also do not indicate equity needs in 2021, implying that the company will accelerate its pace of debt paydown, which adds 2 cents per share to the earnings estimates for the company, Dumoulin-Smith said, revising the estimate for 2022 from $1.14 per share to 1.16 per share.

Price Action

Shares of PG&E slipped 2.2% to $8.87 on Tuesday.

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