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Where Does PG&E Stand from a Valuation Perspective?

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Dec. 4 2020, Updated 10:52 a.m. ET

PG&E Corporation’s market performance

All California utilities, including PG&E Corporation (PCG), Edison International (EIX), and Sempra Energy (SRE), have outperformed utilities at large in the last year.

The rally in utilities since the beginning of 2016 has resulted in steeper rises in these utilities. SRE, PCG, and EIX have managed to rise nearly 15% in the period.

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Valuation

As of May 5, 2016, PG&E Corporation is trading at an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 9x. The EV-to-EBITDA multiple is a valuation metric used to indicate whether a stock is overvalued or undervalued, regardless of its capital structure. PCG’s five-year average EV-to-EBITDA multiple is 8x. The industry (XLU) average is around 10.7x.

By comparison, Sempra Energy is trading at a multiple of 13x, and Edison International is trading at 8x. Pinnacle West Capital (PNW) is trading at 8.9x.

PG&E Corporation’s forward EV-to-EBITDA multiple is around 7.1x. The fact that its forward multiple is lower than its current multiple indicates expectations of higher EBITDA in 2016. Almost all of the above-mentioned utilities have lower forward EV-to-EBITDA multiples than their current multiples. This suggests expectations of better earnings this year.

Utilities (VPU) have been trading at heavy premiums, and the Federal Reserve’s recent decision to maintain the status quo on interest rates at its April Federal Open Market Committee meeting has fueled this rally further. As a result, investors who want to buy utilities at fair prices may have to wait a little longer.

In the final part of our series, we’ll see what’s in store for PG&E Corporation’s investors in the long term.

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