Analyst Assesses PG&E's Zogg Fire Liability Risk

PG&E Corporation 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.