PG&E Corporation (PCG): A Bull Case Theory

We came crossed a bullish thesis connected Pacific Gas and Electric Company connected Value investing subreddit by cameronreilly. In this article, we volition summarize the bulls’ thesis connected PCG. Pacific Gas and Electric Company's stock was trading astatine $16.12 arsenic of November 28th. PCG’s trailing and guardant P/E were 13.55 and 9.95 respectively according to Yahoo Finance.

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PG&E Corporation, done its subsidiary, Pacific Gas and Electric Company, engages successful the merchantability and transportation of energy and earthy state to customers successful bluish and cardinal California, the United States. PCG presents 1 of the astir antithetic cases successful U.S. worth investing—a convicted felon of a inferior that inactive sits connected a bargain list. PG&E is simply a monolithic regulated monopoly serving 16 cardinal radical crossed bluish and cardinal California, and portion specified businesses typically present predictable returns, PG&E’s past is defined by engineering failures, clime exposure, and catastrophic mismanagement.

The 2018 Camp Fire, caused by a worn hook connected an ageing transmission tower, killed 85 people, destroyed thousands of structures, and near the institution facing astir US$30 cardinal successful liabilities. This event, layered onto the 2010 San Bruno pipeline explosion, an equipped substation attack, and galore regulatory scandals, pushed PG&E into a 2019 bankruptcy and a US$13.5 cardinal settlement, culminating successful blameworthy pleas to 84 counts of involuntary manslaughter.

Yet beneath the catastrophe communicative lies a protected monopoly with a rapidly expanding regulated plus base. PG&E is present investing tens of billions to harden its grid—burying powerfulness lines, deploying microgrids, improving occurrence hazard analytics, and installing weather-triggered shutoff systems. Much of this capex flows into its regulated complaint base, generating approved returns, portion California’s US$21 cardinal Wildfire Insurance Fund present helps socialise aboriginal wildfire losses. The authorities efficaciously cannot fto PG&E neglect due to the fact that it indispensable support energy flowing crossed a fire-prone region.

Financials look frightening astatine archetypal glance—US$24.7B successful revenue, US$2.7B successful nett profit, and astir US$59B successful nett debt—but overmuch of the leverage sits successful state-engineered betterment structures repaid done lawsuit surcharges. While PCG looks inexpensive connected Price/Operating Cash Flow astatine 4.2, it screens poorly connected QAV prime metrics. The stock’s illness from US$70 successful 2017 to the mid-teens reflects heavy marketplace trauma, but it besides creates a contrarian setup: if grid-hardening efforts win and regulators support supportive returns, the equity could softly compound. If different catastrophic nonaccomplishment occurs, each upside disappears.