PG&E Earnings: Raising Fair Value Estimate After Another Solid Performance

We are raising our fair value estimate for PG&E PCG to $15 per share from $13.50 after incorporating several financial and operational updates, including another quarter of consistent earnings this year. The company reported $0.23 in core earnings per share for the second quarter, down from $0.25 last year.

PG&E remains on track to meet our 2023 earnings forecast, assuming full-year customer rate increases are implemented during the second half, as we expect. This delay is typical in California. We are maintaining our no-moat rating.

Management reaffirmed its $1.19-$1.23 EPS guidance for 2023 and 10% annual EPS growth outlook through 2026, both in line with our forecast. This would be among the highest earnings growth rates in the sector if PG&E can achieve it.

PG&E has swung from being one of the most undervalued stocks in our coverage to one of the most overvalued after rallying from $10 per share to over $17 during the last 12 months. It trades at a 17% premium to our new fair value estimate.

PG&E’s consistent financial performance and constructive regulatory developments give us more confidence that the company can hit its near- and long-term growth targets. We expect 9% earnings growth this year and 9% annual earnings growth on average over 2024-27. A constructive outcome in PG&E’s 2023-25 general rate case and avoiding major safety lapses will support that growth. Approval to relicense the Diablo Canyon nuclear plant recently eliminated another risk.

We continue to expect PG&E to invest more than $9 billion annually for at least the next five years, in line with management’s plan and regulatory filings. Nearly all of that investment will go to clean energy, electric vehicle infrastructure, wildfire safety, and reliability improvements.

PG&E remains on track to initiate a dividend this year. We expect a small initial dividend to preserve capital for PG&E’s growth investments. We expect dividend growth to trail earnings growth until beyond 2027.