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PG&E Corp Valuation – April 2018 $PCG

Company Profile (excerpt from Reuters): PG&E Corporation, incorporated on November 17, 1995, is a holding company. The Company’s primary operating subsidiary is Pacific Gas and Electric Company (the Utility), which operates in northern and central California. The Utility is engaged in the sale and delivery of electricity and natural gas to customers. The Utility generates electricity and provides electricity transmission and distribution services throughout its service territory in northern and central California to residential, commercial, industrial, and agricultural customers. The Utility provides bundled services (electricity, transmission and distribution services) to various customers in its service territory. As of December 31, 2016, the Utility owned approximately 18,400 circuit miles of interconnected transmission lines operating at voltages ranging from 60 kilovolt to 500 kilovolt. As of December 31, 2016, the Utility also operated 92 electric transmission substations with a capacity of approximately 64,600 megavolt ampere (MVA). The Utility’s electric transmission system is interconnected with electric power systems in the Western Electricity Coordinating Council, which includes various western states, Alberta and British Columbia, and parts of Mexico.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of PCG – April 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $22,684,490,647 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.88 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 19.09% Fail
6. Moderate PEmg Ratio PEmg < 20 14.27 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.18 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.88 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -20.94 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $3.08
MG Growth Estimate 4.58%
MG Value $54.45
Opinion Fairly Valued
MG Grade C+
MG Value based on 3% Growth $44.68
MG Value based on 0% Growth $26.19
Market Implied Growth Rate 2.88%
Current Price $43.97
% of Intrinsic Value 80.76%

PG&E Corporation does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $2.36 in 2014 to an estimated $3.08 for 2018. This level of demonstrated earnings growth supports the market’s implied estimate of 2.88% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into PG&E Corporation revealed the company was trading below its Graham Number of $55.6. The company pays a dividend of $1.55 per share, for a yield of 3.5%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 14.27, which was below the industry average of 23.3, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-82.55.

PG&E Corporation receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$82.55
Graham Number $55.60
PEmg 14.27
Current Ratio 0.88
PB Ratio 1.18
Current Dividend $1.55
Dividend Yield 3.53%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $6,281,000,000
Total Current Liabilities $7,129,000,000
Long-Term Debt $17,753,000,000
Total Assets $68,012,000,000
Intangible Assets $0
Total Liabilities $48,792,000,000
Shares Outstanding (Diluted Average) 515,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.68
Dec2017 $3.21
Dec2016 $2.78
Dec2015 $1.79
Dec2014 $3.06
Dec2013 $1.83
Dec2012 $1.92
Dec2011 $2.10
Dec2010 $2.82
Dec2009 $3.20
Dec2008 $3.63
Dec2007 $2.78
Dec2006 $2.76
Dec2005 $2.37
Dec2004 $8.97
Dec2003 $1.92
Dec2002 $4.49
Dec2001 $2.80
Dec2000 -$9.49
Dec1999 $1.93
Dec1998 $1.99

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.08
Dec2017 $2.70
Dec2016 $2.39
Dec2015 $2.17
Dec2014 $2.36
Dec2013 $2.13
Dec2012 $2.43
Dec2011 $2.76
Dec2010 $3.07
Dec2009 $3.12
Dec2008 $3.42
Dec2007 $3.46
Dec2006 $3.90
Dec2005 $4.35
Dec2004 $4.14
Dec2003 $1.26
Dec2002 $0.74

Recommended Reading:

Other ModernGraham posts about the company

5 Speculative and Overvalued Companies to Avoid – May 2015
PG&E Corporation Annual Valuation – 2015 $PCG
16 Companies in the Spotlight this Week – 4/19/14
PG&E Corp (PCG) Annual Valuation – 2014

Other ModernGraham posts about related companies

Dominion Energy Inc Valuation – April 2018 $D
Exelon Corp Valuation – March 2018 $EXC
NRG Energy Inc Valuation – March 2018 $NRG
DTE Energy Co Valuation – March 2018 $DTE
The AES Corp Valuation – March 2018 $AES
FirstEnergy Corp Valuation – March 2018 $FE
Edison International Valuation – March 2018 $EIX
WEC Energy Group Inc Valuation – March 2018 $WEC
CenterPoint Energy Inc Valuation – March 2018 $CNP
Southern Co Valuation – March 2018 $SO

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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