Why PG&E Corporation price target reduced by JP Morgan Chase & Co.
The article takes a look at the reasons provided by JPMorgan Chase equity research analysts for lowering the price target of PG&E Corp.
In a research report, Anant kapur and Christopehr Turnure -JP Morgan Chase & Co. analysts reiterated is overweight rating on the stock market of PG&E Corporation. While, it reduced the target price of the firm to $56 from $60 followed by the modified decision came out by Presiding Officer related to the penalty cases of San Bruno. The revised decision is not expressively different from the previous decision which was issued by administrative judges.
The previous decision by Presiding Officers specifies cash fine of almost $950 million, refund to customer of $400 million and headline amount of total $1.4 billion, all this did not include safety spending amount which was borne by the shareholders. The modified version of the decision was issued by the President pointed towards a cash fine of $300 million; $850 million spend on safety which was non-recoverable and $1.6 billion of whole headline amount.
As we can see the new decision decrease the cash fine which results in a substantially less non-tax deductible total which added almost $690 out of $850 million to the capital. The remaining balance consisting of expenses will be found out in coming pending summer’s Gas Transmission and Storage Rate Case (GT&S). The investment bank had predicted a cash fine of $650 million and almost $450 of un-recovered spending, which shows that the modified proposal is according to the expectations of the investors.
The Target price is set on the basis of JP Morgan’s earnings per share and price to earnings ratio of 16.2x for the year 2017. This is based on the industry average and is also accustomed according to the low interest rate environment. Research analyst of JP Morgan believes that the company permits the discount on the basis of improbability surrounding the fines, equity requirements, and additional spending on safety program which was balanced by strong interest rate and potential growth in earnings.
The financial services holding firm analysts have set few risks to the target price and rating of the company stock. PG&E is vulnerable to predominant ambiguity concerning the costs and penalties related to pipeline explosion in San Bruno on September 2010. Confrontational supervisory body decisions can hurt the earnings lower than expected.
Moreover, planned gas and electric utilities are conditional to severe state and federal rule, as well as determination of revenue allowed. Any changes to the regulatory surroundings will affect the earnings to fluctuate from current estimations.
On the whole, PG&E Corporation obtains coverage from twenty research analysts along with a consent target price of $57.35. Eleven analysts rated the stock as a Buy, however eight recommend a rating Hold.