Categories Analysis, Energy, Markets

Pacific Gas and Electric stock plunges to all-time low

Pacific Gas and Electric Corporation (PCG) stock plunged to an all-time low of $5.07 on Tuesday as the company would seek bankruptcy protection after facing billions of dollars in claims from deadly wildfires. The electric company has lost significant market value from November 7, 2018, when the stock traded nearly $50.

The company intends to file on or about January 29, 2019, for voluntary reorganization, which is not expected to impact electric or natural gas service for customers. This comes a day after the resignation of chief executive officer Geisha Williams.

The California wildfires, which have led to an increase in insurance claims, have killed dozens of people and destroyed thousands of homes. The state investigators blamed Pacific Gas and Electric’s power lines for causing the wildfires in October 2017. The company estimates the liability to exceed $30 billion but excluding potential punitive damages, fines or damages tied to future claims.

Investors remained concerned about the company’s return to the market after claims settlement. The company had already faced several wildfire-related lawsuits and more than $2.5 billion in liabilities. In recent years, the company has paid several millions of dollars in similar cases, starting with natural gas pipeline blast in San Bruno about eight years ago.

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The company’s fundamental issues and challenges would not be addressed when considering financial alternatives to bankruptcy. And the alternatives would not serve the best interests of the company and its shareholders. The company should consider resolving potential liabilities, extensive rebuilding efforts and climate change would increase wildfire risk.

The company had about $1.5 billion in cash and cash equivalents on hand as of January 7. Along with this, the company is in discussion with major banks for securing more than $5 billion to fund ongoing operations, including its ability to provide safe service to customers.

Shares of Pacific Gas and Electric has fallen over 86% since November 8, 2018, and continued to drop on Tuesday’s regular session. Investors remained concern about the stock’s performance till the company files for bankruptcy. Majority of the analysts recommended a “strong buy” or “buy” rating while expecting the stock to reach $35.67 in the next 52 weeks.

Traders are cautious of buying the stock that touched an all-time low today as bankruptcy is extremely risky and could lead to financial loss. However, the company could emerge from bankruptcy as a viable entity.

 

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