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Is PG&E’s Discounted Valuation an Opportunity?

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Valuation

PG&E (PCG) is trading at an EV-to-EBITDA valuation multiple of 7.5x—lower than utilities’ average valuation of 11x. Its five-year historical average valuation is near 9x. PG&E stock seems to be trading at a striking discount to its historical average and the industry average.

PG&E is the biggest utility by market capitalization in California and the fifth-largest utility in the industry. PG&E forms 5.3% of the Utilities Select Sector SPDR ETF (XLU).

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Peers’ valuation

Edison International (EIX), PG&E’s peer and the smallest utility in California, is trading at a valuation multiple of ~10x. Sempra Energy (SRE) has its valuation ratio above 15x.

PG&E’s more than 20% fall last month after the California wildfires resulted in a large discounted valuation.

In addition to the EV-to-EBITDA ratio, PG&E looks to be trading at a fairly discounted valuation considering its PE (price-to-earnings) multiple. Currently, it’s trading at a PE multiple of 13x, while Sempra is trading at a PE ratio of 25x. Edison International has its PE ratio near 19x.

Before the wildfires, PG&E stock was outperforming broader utilities (IDU). However, the fall stung its investors hard. It has lost more than 7% year-to-date, while the Utilities Select Sector SPDR ETF (XLU) managed to gain 14% during the same period.

To learn more about broader utilities and how they recently played out, read US Utilities: Where the Stocks Might Go from Here.

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