Tags: PG&E | San | Bruno | PCG

PG&E, Looking Past San Bruno, Seeks Return to Growth

By    |   Thursday, 05 July 2012 02:25 PM

PG&E (PCG) is looking past the San Bruno gas explosion of 2010, which burned down homes and left eight dead in a residential neighborhood near San Francisco. Analysts are supportive of the stock post-accident but note that its prospects depend heavily on renewed power demand in a weakened California economy.

PG&E is a holding company whose primary purpose is to hold interests in energy-based businesses. PG&E Corporation conducts its business principally through Pacific Gas and Electric Company, a public utility operating in northern and central California.

The utility engages in the businesses of electricity and natural gas distribution; electricity generation, procurement, and transmission; and natural gas procurement, transportation, and storage. It served approximately 5.2 million electricity distribution customers and approximately 4.3 million natural gas distribution customers at Dec. 31, 2011.

In September 2010, an underground 30-inch natural gas transmission pipeline owned and operated by the utility in a residential area San Bruno, Calif. exploded, resulting the the deaths of eight people. Numerous homes were burned down or damaged.

The utility has stated publicly that it is liable for the San Bruno accident and that it will take financial responsibility to compensate all of the victims for the injuries they suffered as a result of the accident, management said in a recent filing. The utility recently asked the state for a $2 billion rate increase to overhaul its systems in a safety drive, the AP reported.

“On the legal front, we . . . continue our efforts to settle the various individual claims related to the tragedy in San Bruno. Our goal is to provide victims with fair compensation. Just as with the regulatory issues, we'd like to do that as soon as possible, and we're making progress towards that goal.” PG&E Chairman and CEO Anthony Early told analysts during a recent conference call.

“Separately, we were pleased in this quarter to reach a critical agreement with the city of San Bruno by making a contribution to benefit the citizens of the community. This was an important milestone for us in that it helps the city move forward in the healing process.”

PG&E has a market cap of $19.11 billion in a sector, multi-utilities, where the average company size is $4.63 billion. Its trailing 12-month P/E ratio is 20.94 and its five-year projected price-to-earnings-growth (PEG) ratio is 14.44, compared to 13.79 for the sector.

Its projected earnings per share growth for the coming year is negative 2.83 percent, compared to a sector average of 4.36 percent.

Steady returns

Analysts are generally positive on PCG, with buy or outperform calls from Citigroup Investment Research and Deutsche Bank.

“PG&E Corporation’s supportive regulatory environment in California, particularly its decoupling mechanism and forward-looking rate cases, ensures a steady stream of earnings and returns,” Zacks Investment Research analysts wrote in a report dated July 2, in which they set the target price for PCG at $48.

“Going forward, favorable decisions from regulators, long-term supply contracts, diversification into alternative power sources and infrastructure improvement programs (such as Smart Meter) bode well for the company. These positives, however, will be partially offset by risks, including the present unfavorable macro backdrop, headwinds in the California economy, tepid demand for electricity, and power-price volatility.”

PG&E next reports on Aug. 7.

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Thursday, 05 July 2012 02:25 PM
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