PCG - PG&E: Dividend Reinstatement Expected In H2 Shares Remain Undervalued

2023-03-09 15:15:49 ET

Summary

• The utilities sector remains expensive, but not all stocks are priced richly.
• With a dividend resumption expected later this year and a low forward P/E, I see shares of PG&E as an ongoing value play.
• The technical picture remains robust, too, as a key technical bullish pattern has played out.

Utility stocks are finally catching a bit of a relative break in March. Some risk-off trading activity lately amid inflationary economic data prints has led investors to seek safety in areas like utilities. The group still trades at a lofty valuation, and the sector has performed very poorly compared to the S&P 500 since the start of the year. The pressure remains on the bulls to carry utilities higher. I see the bears as in control. But one name features a rare uptrend in the space.

PG&E Corporation ( PCG ) marches onward near new highs, and I see the stock as a buy despite a weaker valuation case compared to where it traded at times last year.

Utilities Bouncing Back vs SPY In March So Far

According to Bank of America Global Research, PG&E Corporation is the owner of the Pacific Gas & Electric Company, a regulated utility servicing 13 million people in a 70,000 square mile service area in Northern and Central California. The utility has businesses in electric and natural gas distribution, electricity generation, procurement, and transmission, as well as natural gas procurement, transportation, and storage. Pacific Gas & Electric manages 5.2 million customer accounts and 4.3 million gas customer accounts.

The California-based $32.4 billion market cap Electric Utilities industry company within the utilities sector trades at a near-market 19.0 trailing 12-month GAAP price-to-earnings ratio and does not pay a dividend, according to The Wall Street Journal.

In late February, PG&E issued an in-line earnings report with a slight miss on the topline (though y/y revenues rose 5% from the prior year). Guidance was somewhat lackluster - non-GAAP per-share profits are seen in the $1.19 to $1.23 range versus a $1.22 consensus. Still, the stock trades at a more than 20% discount to its peers, and the firm has worked to de-risk its portfolio of generation assets.

On valuation , analysts at BofA see earnings climbing more than 17% this year, with continued strength through 2024. The Bloomberg consensus outlook is just slightly less sanguine compared to BofA's outlook. Dividends are seen as resuming this year, which would be a bullish headline catalyst during the middle of this year.

With a forward operating P/E currently under 14, the stock remains a bargain on its own and compared to the industry average. BofA even sees the yield rising to more than double the rate on the S&P 500 in 2024 should the stock price hover here in the mid-teens. If we assign a 17 multiple to $1.30 of earnings, that's a $22 stock price.

PG&E: Earnings, Valuation, Dividend Forecasts

Looking ahead, corporate event data provided by Wall Street Horizon show an unconfirmed Q1 2023 earnings date of Thursday, April 27 BMO. The calendar is light on volatility catalysts until the reporting date.

Corporate Event Risk Calendar

The Technical Take

PCG stock recently broke out from a bull flag pattern. Notice in the chart below that shares are near multi-year highs after consolidating in the $13 to $16.50 range. Based on the move, technicians might suggest a measured move price objective to near $23 when adding the length of the poll to the breakout point - that would align with the valuation I outlined.

Buttressing that argument is the major bullish volume spike in late September and early October this year that helped send PCG through $13 resistance. Finally, the 200-day moving average is rising with the share price more than 10% above that trend indicator. Overall, the chart still appears favorable.

PCG: Bull Flag Breaks Higher, Eyeing New Highs

The Bottom Line

With PCG still trading at a discount to its peers, a dividend reinstatement on the horizon, and a bullish chart, I continue to like the stock here.

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