Bankruptcy Buzz Could Bury PG&E Stock

PG&E is facing steep liability charges for its role in deadly California wildfires

Managing Editor
Jan 7, 2019 at 9:20 AM
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The shares of PG&E Corporation (NYSE:PCG) are down 18.7% in electronic trading, after Reuters reported the California utility company was exploring a bankruptcy filing. The move would be a contingency plan to help manage the costs from insurance liabilities incurred from massive wildfires in November and in 2017. 

Should today's premarket price action pan out, PCG would be dangerously close to its 15-year low of $17.26 hit on Nov. 15. This came in the wake of a massive bear gap, sparked by news the company reported electrical issues to regulators ahead of the deadly Camp and Woolsey wildfires that raged in California. This resulted in a sharp quarterly loss of 48.4%. 

It's not surprising to see that short sellers have flocked to the utility stock. Short interest increased by 40% in the last two reporting periods to 12.71 million shares, the most since October 2014. Nevertheless, this only represents 2.5% of PCG's total available float. These bearish bettors are expected to be sidelined today, though, with the equity likely headed for the short-sale restricted list.

What is a surprise is that the majority of analysts still favor the equity. Of the 12 brokerages in coverage, seven rate it a "strong buy," compared to four "holds," and one "sell." In addition, UBS raised its PCG price target this morning to $29 from $26, and the consensus 12-month price target of $37.67 is a 54% premium to Friday's closing perch of $24.40. A round of bear notes could put more pressure on the shares.

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