PG&E Earnings: Industry-Leading Growth Outlook on Track Going Into 2024

Key Morningstar Metrics for PG&E

• Fair Value Estimate: $15.50
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: Medium

What We Thought of PG&E’s Earnings

We reaffirm our $15.50 per share fair value estimate for PG&E PCG after the company reported $1.23 of core earnings per share in 2023. Earnings were up 12% from 2022, slightly above our estimate and at the top of management’s guidance. We expect earnings growth to remain near management’s 9% target for at least the next three years, given regulatory clarity following the resolution of its 2023-26 general rate case in late 2023.

Our 2024 earnings estimate is at the high end of management’s $1.33-$1.37 guidance. However, several outstanding regulatory decisions could lead those estimates to converge. Management’s $62 billion capital investment plan for 2024-28 is up $10 billion from its previous five-year plan, with most of that increase in 2027-28, when PG&E is scheduled to start its next four-year rate cycle. PG&E will have to convince regulators to approve this investment and a return on the investment to continue growing earnings at its 9% target. More regulatory clarity related to those investments would boost our fair value estimate by $1 per share.

Burying transmission lines to reduce wildfire risk and improve reliability remains a key part of PG&E’s investment plan, but this process is in its early stages. We assume PG&E will invest $4 billion in undergrounding during the next four years, based on regulatory negotiations in 2023. This amount could push our fair value estimate higher if PG&E can prove cost savings and customer benefits to regulators. Operating cost savings will be vital to minimizing customer bill growth as the company executes its investment plan. If the firm cannot realize those savings, regulators will push back some of its growth investments during its next rate cycle.