Where PG&E Stock Might Go amid Mounting Woes

  • Recently, PG&E stock continued to trade with large swings and a heavy volume.
  • The latest troubles could complicate the company’s path to emerge from bankruptcy.

PG&E’s (PCG) troubles continue to mount every day. The bankrupt utility needs to raise a total of $12 billion by December 6 to fund its restructuring plan. However, according to a Bloomberg article on Monday, a large number of investors backed out, which created a void of about $4.6 billion. Now, PG&E has $7.4 billion in commitments.

Uncertainty drove PG&E stock

The utility has been trying to come up with a viable reorganization plan for a long time. Also, creditors and shareholders are fighting over control of the company. California Governor Gavin Newsom is trying to settle issues among all the involved parties. He has threatened a possible takeover of the troubled utility.

PG&E stock has been trading notably volatile this year. The company’s implied volatility average was around 170% recently compared to utilities’ average volatility of 11%. The implied volatility measures investors’ anxiety. A rise in the volatility generally results in a fall in stock prices. PG&E’s implied volatility peaked beyond 240% late last month amid new fires.

So far in 2019, PG&E stock has fallen more than 70%. In comparison, peer utility stocks in the state including Sempra Energy (SRE) and Edison International (EIX) have risen around 38% and 25% YTD. Sempra Energy is the biggest utility by market capitalization in California. The stock has traded strongly for most of this year. Currently, Sempra Energy stock is trading at its all-time high.

Wall Street analysts are still cautious about PG&E stock. Among the ten analysts covering the stock, nine recommend a “hold,” while one recommends a “sell.”

California wildfires and PG&E

PG&E came under serious criticism due to its involvement in the 2017 and 2018 wildfires. The company filed for bankruptcy when the wildfire liabilities reached $30 billion. Apart from PG&E’s faulty equipment, inverse condemnation increased its issues. Inverse condemnation is a law in California that holds utilities accountable for wildfire-related damages even if they followed the required safety standards. PG&E is one of the largest utilities in the US. The company serves more than 16 million customers.

Last week, the utility came up with a plan to offer around $13.5 billion as compensation to individuals impacted by wildfires. The amount equals the compensation amount proposed by bondholders. Elliott Management and Pacific Investment Management are two of the bondholders.

Notably, the bankrupt utility has been given a deadline of June 30, 2020, to emerge from Chapter 11 bankruptcy. However, with increased uncertainties and higher potential liabilities associated with the new fires, PG&E’s path out of bankruptcy seems challenging.

Along with bankruptcy proceedings, precautionary power shutdowns are another headache for the company. PG&E warned about another potential blackout event this week amid strong offshore winds. Approximately 303,000 people could be impacted by these power shutoffs.