Lone PG&E Bull Refuses to Ditch ‘Buy’ Rating Even After 80% Wipeout

(Bloomberg) -- If you liked PG&E Corp. at $47 a share in early November, you’ll love it at six bucks now.

That, in a nutshell, is what the troubled utility’s last remaining bullish analyst is telling investors after reiterating his “buy” rating on the shares.

On Tuesday, Morningstar’s Travis Miller said in a note that PG&E, which is on the brink of bankruptcy after losing over 80 percent of its market value since early November, offers a substantial return for those who are “willing to hold through several years of uncertainty.” His new price target for PG&E is $11 a share, which implies a 59 percent gain from Tuesday’s price of $6.91. (His rating of four out of five stars on Morningstar’s rating scale is equal to a “buy,” according to Bloomberg.)

Lone PG&E Bull Refuses to Ditch ‘Buy’ Rating Even After 80% Wipeout

PG&E shareholders will likely “retain post-bankruptcy equity value” that’s greater than the market is pricing in, he said in the note. Later in an interview, he added that “if regulatory and legal outcomes happen as we think they will, buyers could see a substantial return on their investment today.”

Before PG&E woes came to light, the bullish analyst had plenty of company. On Nov. 8, when the shares closed at $47.80, half its analysts had “buy” ratings and the other half had “hold” ratings, data compiled by Bloomberg show. Now, Miller is the only one out of 17 with a “buy.”

Wildfire Liabilities

PG&E said Monday that it planned to file for Chapter 11 by the end of this month in the face of mounting wildfire liabilities that could reach $30 billion or higher. Several analysts have since slashed their ratings on the company’s stock, with Wells Fargo’s Neil Kalton cutting his price target Wednesday to $10 because the firm sees a “highly complex and lengthy” bankruptcy process.

Miller argues that regulators are already creating a so-called stress test that will limit the company’s liabilities from 2017 wildfires. He also notes that government officials including California Governor Gavin Newsom have said they want healthy, investor-owned utilities. What’s more, the company’s financially strong gas and power transmission business must have an “equity layer” if they are going to have access to capital, he said.

Miller, who noted that his price target fits within a range of other analysts on Wall Street, has been a longstanding PG&E bull. Apart from a four-week period in December when he temporarily dropped his rating to “hold,” he’s been recommending that investors buy the shares since April, when it traded at roughly $45, data compiled by Bloomberg show.

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