Should I Sell My PG&E Stock?

With the market up a remarkable 20.8% this year, it’s somewhat impressive to see a boring old utility stock like PG&E Corporation (NYSE:PCG) up 10.6%.

Amidst a backdrop of AI hype, many stocks are well down on the year, and have ceded leadership to the technology titans once again. But PCG share price, while underperforming the broader market, is holding up rather well for a utility stock so it is time to dump shares before the next downturn?

PG&E Is Still Innovating

If you’re not a west-coaster, you may not know that PG&E alongside its subsidiary Pacific Gas and Electric Company, is a key supplier of electricity and natural gas in northern and central California.

One of the aspects of PG&E’s business model that makes it attractive is its diversity of energy sources, such as nuclear, hydroelectric, fossil fuels, fuel cells, and solar power to operate its large system, which includes transmission lines, substations, and distribution networks. 

You might assume PG&E’s goals are limited to delivering steady power to its broad customer base but it has in fact been looking to innovate through clean energy projects after entering exclusive negotiations with KKR’s Infrastructure Strategy to sell a minority stake in Pacific Generation LLC.

This deal has a string of advantages, such as increased investment in power generation and storage assets needed to produce reliable and green energy supplies.

The partnership should bring future cost savings and better service dependability as well as support growth in renewable energy projects, especially those focusing on hydro and pumped storage technologies. These are crucial for hitting California’s green energy goals and dealing with market changes.

PG&E’s latest operational successes have strengthened its infrastructure and improved service options. This includes significant investments in underground power lines and fortified infrastructure in high-fire-risk areas. The company has also introduced facilities for renewable natural gas and stations for charging electric vehicles. .

So what does it all mean when it comes to financial performance?

Did PG&E Really Report 31% Revenue Growth?

Don’t expect PG&E to report NVIDIA-like growth rates but, at the same time, the top line has been quite impressive. Over the past four quarters, the revenue growth year-over-year has come in at 9.2%, 31.1%, -5.6%, and 13.2%. Those numbers aren’t bad by any means for a utility stock.

The fiscal second-quarter results for PG&E in 2024 show much better financial performance than last year. In the Q2 2024, PG&E’s total operating revenues increased by 13.2% to $6 billion compared to last year.

Income before income taxes rose by 708% from the same period in the previous year, amounting to $606 million. The company’s non-GAAP core earnings and EPS rose 36.4% and 34.8%, reaching $674 million and $0.31, respectively.

Management has updated their 2024 GAAP earnings forecast to be between $1.11 and $1.17 per share, a revision from the prior prediction of $1.15 to $1.20 per share. This change mainly accounts for costs linked with unrecoverable interest expenses, estimated after tax at around $285 million to $365 million.

At the same time, PG&E confirmed its expected range for 2024 non-GAAP core earnings at $1.33 to $1.37 per share. These numbers do not include non-core items, which management thinks are not good indicators of regular earnings and add up to about $420 million to $460 million after tax.

Should I Sell My PG&E Stock?

There is no reason to sell PG&E stock according to the consensus of 16 analysts covering the stock until it reaches the price target of $21.77 per share.

On a multiples basis, the stock appears attractive too. PG&E is trading at a price-to-earnings multiple of 16.9x, which may seem a little lofty for a utility stock but not when compared to the forecasted 13% annual growth rate in net income over the next 5 years.

It should be noted that revenues are only expected to climb by 2.3% annually over the next 5 years. 

What Is PG&E’s Investment Outlook?

PG&E’s revenue has increased at a CAGR of 8.2% in the last three years. The company’s net income and EPS have also grown at CAGRs of 46.6% and 44.7%, respectively while EBITDA rose at a CAGR of 9.4% during this same time frame.

For the fiscal 2024 year end, analysts suggest PG&E’s revenue will be $25.14 billion, up 2.9% year-over-year and EPS is expected to rise 10.3% year-over-year to $1.36 per share.

For the next fiscal year ending December 2025, PG&E’s revenue are predicted to rise by 2.5% and reach $25.75 billion. Analysts expect its EPS to grow by 9% compared to last year and come in at $1.48 per share.

Turning attention to other key multiples, forward EV/Sales ratio is 3.93x, about 4% lower than the industry average of around 4.09x while forward EV/EBITDA ratio at 10.23x is approximately 8.6% less compared to the sector average of 11.19x.

The forward Price/Sales ratio amounts to 1.56x compared with an industry mean of 2.13x, a difference reflected in its being lower by around 26.7%. PG&E’s forward Price/Book sits at approximately 1.41x compared with the sector average of 1.66x.

If there were on large drawback of owning the utility it’s that the debt burden is quite significant. While it does have $1.3 billion in cash and $10.7 billion in receivables, it also has a whopping $52.2 billion in long-term debt on the books, though that may start to look a little better as rates fall. Nonetheless, it’s a concerning figure for conservative investors.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.