PG&E Earnings: Another Steady Quarter as Dividend Creeps Closer

PG&E Stock at a Glance

• Fair Value Estimate: $13.50
• Morningstar Rating: 2 stars
• Morningstar Uncertainty Rating: Medium
• Morningstar Economic Moat Rating: None

PG&E Earnings Update

We are reaffirming our $13.50 per share fair value estimate for PG&E PCG after the company reported $0.29 per share of core earnings during the first quarter of 2023, mostly flat from last year. We are maintaining our no-moat and stable moat trend ratings.

Management reaffirmed its $1.19-$1.23 EPS guidance range for 2023 and 10% annual EPS growth outlook through 2026, both in line with our forecast. This would be among the highest earnings growth rates in the sector if PG&E can achieve it.

The market appears to have erased its doubts about PG&E, lifting the stock price to $17 from $10 in the last nine months. In that time, it has gone from one of the cheapest to one of the priciest utilities based on our fair value estimates.

We think California’s regulatory structures support PG&E’s growth outlook, but growth might be lumpy depending on when regulators finalize PG&E’s 2023 general rate case and other regulatory proceedings. The GRC delay puts extra pressure on PG&E to manage operating and financing expenses this year. Normalized earnings should jump in 2024 as new base rates retroactive to January 2023 take effect.

We think PG&E will continue to benefit from constructive rate regulation supporting $9 billion of annual capital investment in 2023-25 primarily for electric vehicle infrastructure, wildfire safety, and other reliability improvements.

PG&E might request an increase in its 10% allowed return on equity starting next year if interest rates remain at current levels. This could have a positive impact on 2024-25 earnings growth. We already assume a higher long-term allowed ROE, so it wouldn’t affect our fair value estimate.

PG&E remains on track to meet the financial metrics required in its bankruptcy exit plan to initiate a dividend late this year. We expect a small initial dividend to preserve capital for PG&E’s growth investments. We don’t expect significant dividend growth until beyond 2027.