PG&E Wraps Up Solid 2022 Performance, Eyes New Dividend Late This Year

PG&E Stock at a Glance

• Current Morningstar Fair Value Estimate: $12.70
• PG&E Stock Star Rating: 2 stars
• Economic Moat Rating: None
• Moat Trend Rating: Stable

PG&E Earnings Update

We are reaffirming our $12.70 per share fair value estimate for PG&E PCG stock after the company reported $1.10 per share of core earnings in 2022, in line with our outlook and management’s guidance. We are maintaining our no-moat and stable moat trend ratings.

Management also reaffirmed their outlook through 2026 that implies nearly 10% annualized earnings growth, in line with our forecasts. This would be among the highest earnings growth rates in the sector if PG&E can achieve it. We think the regulatory structures are in place to support this growth, but it might not be as smooth of a trajectory as management suggests.

Our 2023 earnings estimate is at the low end of management’s $1.19-$1.23 EPS guidance range. We think PG&E could face some extra financing and operating cost pressures this year, especially given a likely lengthy delay in its 2023-25 general rate case decision. We expect normalized earnings to rebound in line with management’s outlook in 2024-26. Beyond 2026, we think shareholders should expect a slowdown in growth due to a shrinking gas business, slowing electric system growth, and the possibility of new equity needs.

California remains what we consider one of the most constructive regulatory environments in the U.S. In late December, regulators approved a 10% allowed return on equity for 2023, one of the highest in the sector and supporting PG&E’s growth. Regulators also are supporting PG&E’s proposed investments in electric vehicle infrastructure, wildfire safety, and other investments to improve reliability. We forecast $9 billion of annual capital investment in 2023-25.

We continue to expect PG&E will satisfy its post-bankruptcy earnings threshold to re-initiate a dividend, likely in 2024. We expect a small initial dividend to ensure PG&E has enough equity capital to fund its growth investments. We don’t expect significant dividend growth until beyond 2027.