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Investing.com -- California’s passage of wildfire legislation has eased short-term financial risks for its utilities, Morgan Stanley said, upgrading PG&E Corp to Equal weight.
The new law, Senate Bill 254, replenishes the state’s wildfire insurance fund and delays potential equity contributions from utilities, which analysts said significantly reduces the chance of near-term capital strain.
“The final text is in line with the amendments proposed last week and, in our view, brings meaningful improvement to the risk profile of the California utilities,” Morgan Stanley said.
The brokerage noted that the $18 billion continuation account means “more than one catastrophic fire would be needed to lead to a depletion of wildfire funds and loss of key protections.”
Morgan Stanley lifted its price target on PG&E to $20 from $19, about 33% above current levels, and on Edison International to $61 from $55. It reiterated an Overweight call on Sempra, citing strong growth in Texas and limited fire exposure.
PG&E’s investment case looks more attractive after the legislative change and a steep discount to peers, the analysts said. “The replenished fund coupled with the current ~50% discount to the sector P/E offer a much more favorable risk reward compared to when we downgraded the stock back in Feb 2025,” they wrote.
Though Morgan Stanley stopped short of a more bullish call, saying California lacks a permanent fix for its “significantly above average wildfire risk.”
For Edison, the brokerge maintained an Underweight view, citing ongoing uncertainty tied to the Eaton Fire and fewer financial levers than PG&E. “We think EIX still has lingering tail risks … and it lacks some of the positive features we see in PCG,” the note said.
Sempra’s limited fire exposure and expansion plans in Texas and liquefied natural gas projects continue to underpin its rating, the analysts added.