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How PG&E’s California Utility Stocks Are Valued

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Dec. 14 2018, Updated 1:05 p.m. ET

Valuation

PG&E (PCG) has lost almost $11 billion of its market capitalization over the past month. PG&E stock is trading at a notable discount compared to its historical average valuation and its peers. The stock is trading at a forward PE ratio of 7x based on analysts’ projected earnings for 2019.

PG&E’s historical average PE ratio is ~20x. Peers’ average PE ratio is close to 17x. PG&E stock looks remarkably cheap. However, investors could shun PG&E due to uncertainties associated with the company despite the discounted valuation. PG&E hasn’t provided its earnings guidance for 2018 due to uncertainty about wildfire-related charges. PG&E has suspended its dividends since the fourth quarter of 2017.

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Peers’ valuations

Sempra Energy (SRE) stock is trading at a forward PE ratio of 19x. The company’s five-year average historical valuation is ~20x. Sempra Energy is one of the fastest-growing utilities in the country. The company’s valuation looks attractive. Edison International (EIX) stock is trading at a forward PE ratio of 12x, while its historical valuation is ~18x.

PG&E hasn’t paid dividends to its shareholders in almost a year. The harsh weakness in PG&E stock and the lack of dividends must be frustrating for PG&E investors.

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