Skip to Content
Stock Analyst Update

Fire Raises Questions for Courts, PG&E Shareholders

We are cutting our fair value estimate and reaffirming our very high uncertainty and no-moat ratings.


We are cutting our PG&E (PCG) fair value estimate to $11 from $13 after raising our ongoing operating costs to reflect the likelihood that major fires and power outages like Northern California has experienced the last two weeks will continue. We are reaffirming our very high uncertainty and no-moat ratings.

We continue to think PG&E's valuation should reflect the competing bankruptcy exit plans. We now estimate PG&E's plan values the stock between $11 and $20 per share after our cost adjustment. A competing plan leaves current shareholders with virtually no value. We assume the final exit plan reflects a settlement that leaves current shareholders with about 20% ownership. At $4 per share, we estimate the market is pricing in an 8% ownership stake. 

Even if PG&E ends up at fault for starting the Kincade Fire, we don't think the fire has become large enough or destructive enough to have a substantial valuation impact. Furthermore, state legislation this year created an insurance fund that PG&E might be able to tap to cover fire liabilities in 2019-beyond as long as it exits bankruptcy by June 30, 2020, as scheduled.

At this point, the Kincade Fire appears similar to the 2015 Butte fire, which burned 71,000 acres, destroyed 921 structures, and killed two people. The Kincade Fire had burned 66,000 acres and destroyed 96 structures with no fatalities through early Monday, according to news reports. The Butte Fire resulted in $1.1 billion of third-party claims and had no material shareholder value impact after accounting for insurance recoveries.

The 2018 Camp Fire, which effectively put PG&E into bankruptcy with some $15 billion of liabilities, burned 153,000 acres, destroyed nearly 19,000 structures, and killed 86 people.

Our new, higher operating cost estimate is based on the $200 million of unrecovered clean-up costs the company booked for the 2017 and 2018 wildfires as well as higher legal costs going forward.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

Travis Miller does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.