Market Overview

Analyst Assesses PG&E's Zogg Fire Liability Risk

Share:
Analyst Assesses PG&E's Zogg Fire Liability Risk

PG&E Corporation (NYSE: PCG) shares dropped 5.5% on Monday morning after California investigators seized PG&E equipment during an investigation of a deadly California wildfire.

While the stock may face headline risk in the near-term, one analyst says PG&E’s financial liability is likely minimal.

What Happened: On Sunday, PG&E said the California Department of Forestry and Fire Protection (CalFire) had seized PG&E equipment as part of its investigation of Clifornia’s Zogg fire last month. The Zogg fire killed four people and destroyed 204 structures.

Why It’s Important: PG&E and other California utility companies have faced billions of dollars in liabilities related to a series of California wildfires in recent years. PG&E’s liability burden became so bad that the company actually underwent bankruptcy proceedings earlier this year.

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

The good news for PG&E investors is that Bank of America analyst Julien Dumoulin-Smith says PG&E’s insurance would likely cover the fire’s damages, but that the headlines are certainly reason to be cautious in the near-term.

Bank of America estimates roughly $10 million in liability per death, and Dumoulin-Smith said the median home value in Shasta County, California is $285,000. These numbers yield a rough liability estimate of $5.8 million for the destroyed structures and $40 million for the loss of life. For 2020, PG&E has $757 million in insurance coverage.

“While we believe the latest fire is not likely to be categorized as catastrophic, it could potentially create further pressure with rating agencies as S&P recently placed PCG on negative outlook,” Dumoulin-Smith wrote in a note.

The analyst remains bullish on PG&E shares given the likelihood of limited liability risk from the Zogg fire and the fact that the stock already trades at roughly a 50% valuation discount to its peers.

Benzinga’s Take: It’s understandable for PG&E investors to be spooked given everything they have been through with wildfire liability issues in the past couple of years. However, if Zogg fire liability is easily covered by insurance, Monday’s sell-off could ultimately prove to be a buying opportunity for long-term investors.

Bank of America has a Buy rating and $11 price target for PG&E.

Latest Ratings for PCG

DateFirmActionFromTo
Nov 2020Morgan StanleyMaintainsEqual-Weight
Nov 2020Wolfe ResearchUpgradesPeer PerformOutperform
Oct 2020Morgan StanleyMaintainsEqual-Weight

View More Analyst Ratings for PCG
View the Latest Analyst Ratings

 

Related Articles (PCG)

View Comments and Join the Discussion!

Posted-In: Bank of America Julien Dumoulin-SmithAnalyst Color News Price Target Reiteration Analyst Ratings Best of Benzinga

Latest Ratings

StockFirmActionPT
SLNGCanaccord GenuityMaintains0.450
AYR.ACanaccord GenuityMaintains40.0
LUNTD SecuritiesDowngrades10.0
ZMCredit SuisseMaintains340.0
VOYACredit SuisseMaintains78.0
View the Latest Analytics Ratings
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com