Wells Fargo downgrades PG&E stock rating on wildfire liability concerns

Wells Fargo reduced its rating on PG&E Corporation's stock to "Equal Weight" from "Overweight," maintaining its price target at $24.00. The downgrade was attributed to the lack of a substantial wildfire liability backstop for the utility company. Analyst Shahriar Pourreza stated that the firm has not yet adjusted earnings estimates and still views the stock as undervalued.

The current trading price of PG&E is $16.60 with a P/E ratio of 12.01, indicating that the company is undervalued by approximately 21% according to InvestingPro data. PG&E's stock currently trades at 1.13 times its book value and has declined by 8.3% over the past week. Wells Fargo anticipates a potential drop in the stock price on Monday and noted that some investors are concerned the stock could trade below its book value.

The downgrade is not reflective of the company's management, with CEO Patti Poppe well-positioned to help PG&E navigate its challenges. Wells Fargo expects a revised capital plan from PG&E in the near future, which could influence its assessment of the company's prospects. The analyst emphasized the value-destructive nature of California as a jurisdiction and stated that the entire capital plan is subject to reform during the current legislative session.

PG&E has faced various developments impacting its stock and operations, including a downgrade from BMO Capital to "Market Perform" with a $21.00 price target due to increased wildfire liability concerns. UBS has maintained a "Buy" rating on PG&E, citing progress in California's wildfire legislation, which includes a proposed $6 billion liability cap.

However, a recent setback occurred when California lawmakers blocked a proposal to shield insurance companies from suing utilities over wildfire incidents, highlighting ongoing legislative challenges for utility companies in the state.