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PG&E Stock: Will This Christmas Be Merrier for Investors?


Dec. 10 2019, Updated 7:39 a.m. ET

PG&E (PCG) stock rose as much as 20% on Monday due to the announcement of the company’s settlement with wildfire victims on December 6. The utility will pay $13.5 billion to victims from wildfires in the last few years. The settlement was one of the major thorns in the utility’s bankruptcy proceedings. Now, the settlement is a big win for the utility. PG&E said that it’s on track to emerge from bankruptcy ahead of its deadline of June 30, 2020.

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PG&E stock rose to a two-month high

PG&E stock closed the day at $11.18 with approximately a 16% gain. The stock also witnessed a huge surge in its volume on Monday. Almost 47 million PG&E shares exchanged hands on Monday compared to its three-months average daily trading volume of 20 million. Notably, the shares have gained in nine of the last 11 trading sessions.

Recently, the strength in PG&E stock pushed it into the overbought zone. The RSI (relative strength index) was close to 88 on Monday—one of the highest levels in years. The level is also significantly higher than the 50-day level, which indicates short-term strength in the stock. The level close to $7.8 might act as a support for the stock in the short term.

According to a Reuters article on Monday, PG&E said that it would take a pre-tax charge of $4.9 billion in the current quarter. The charge is associated with settling victims’ claims from the recent fires. The company reported a $2.5 billion charge in the third quarter related to wildfires in 2017 and 2018.

To learn about PG&E’s intentional power shutdowns, read PG&E Gets Hate, but California Blackouts Did Their Job.

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Volatility in PG&E stock 

PG&E stock has been extremely volatile this year. The stock went all the way down to $5 levels just before it filed for bankruptcy in January. The stock rose close to $24 levels in April due to favorable developments. PG&E fell to $3.55 in October due to its alleged involvement in the Kincade fires this year. Recently, after the final major settlement, the stock rose beyond $11 levels.

PG&E stock exhibited an implied volatility of 110% on Monday, which is lower than its 15-day average volatility. In comparison, utility stocks’ volatility is usually around 12%.

PG&E stock has risen more than 70% in the last month. So far this year, the stock has lost 53%. The company has significantly underperformed its peers this year. The Utilities Select Sector SPDR ETF (XLU), which represents the top utility stocks, has risen 19% YTD. Read Utility Stocks: Is There Any Steam Left in These Defensives? to learn more.

Will the stock’s momentum continue?

The equity value mainly becomes zero when the company files for bankruptcy. However, PG&E is trading strong almost a year after filing for Chapter 11 bankruptcy. The company filed for bankruptcy earlier in 2001 as well, but it never took out its common stock. PG&E rose multifold in the next few years and generated handsome returns for investors. We’ll have to see if investors get handsome returns this time. Investors are optimistic after the company’s recent settlement.


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