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Investing.com -- UBS downgraded PG&E (NYSE:PCG) Corp to Neutral from Buy saying there is a lack of catalysts and increased wildfire-related risks.
Brokerage lowered its price target to $19 from $22, reflecting a 30% discount to the utility sector average.
“We move to Neutral from Buy for …the potential depletion of the California wildfire insurance fund due to the Eaton (NYSE:ETN) fire, wildfire volatility, and the absence of a catalyst path to rerate the stock,” UBS stated.
UBS highlighted that PG&E’s investment outlook remains strong, with projected 9% annual EPS growth through 2028, no need for equity issuance to fund its plans, and a solid wildfire mitigation record over the past three years.
However, the firm noted that a California policy response to reduce wildfire risks could serve as a catalyst and potentially contribute to a credit rating upgrade, but no relevant legislation has been introduced.
PG&E is expected to preview its general rate case filing for 2027-2029 in the second quarter, with a target of limiting annual bill increases to 2-4%.
A cost of capital proceeding for California investor-owned utilities is scheduled for March 20. PG&E currently has an allowed return on equity of 10.3% and a 52% equity ratio.
Legislative developments on wildfire fund durability, liability caps, and prudency review guidelines may unfold by June 6, the last day for passing bills in the chamber of origin.
UBS expressed skepticism about PG&E’s ability to achieve a BBB credit rating in the near term. PG&E previously explored selling a minority interest in its proposed non-nuclear generation subsidiary, PacGen, which could have raised $1.2 billion to $1.4 billion.
However, UBS noted there is no clear pathway for further credit improvement that would reassure investors about maintaining investment-grade status.
UBS lowered its price target to $19, factoring in a higher wildfire-related discount of 30%, versus 20% previously.