Shares of PG&E (PCG) are sliding after the company suspended its quarterly dividend, citing uncertainty related to recent Northern California wildfires. Following the announcement, RBC Capital analyst Shelby Tucker downgraded the stock to Sector Perform as he believes the company's "unexpected" decision suggests greater risk that previously assumed regarding the regulatory treatment of the wildfires.
DIVIDEND SUSPENDED: Last night, PG&E Corporation announced that its board of directors has determined to suspend the quarterly cash dividend on the corporation's common stock, beginning with the fourth quarter of 2017, citing uncertainty related to causes and potential liabilities associated with the extraordinary October 2017 Northern California wildfires. In addition, the Board of Directors of the corporation's utility subsidiary, Pacific Gas and Electric Company, determined to suspend the dividend on the utility's preferred stock, beginning with the three-month period ending Jan. 31, 2018, citing the same uncertainty. No causes have yet been identified for any of the unprecedented wildfires, which continue to be the subject of ongoing investigations.
MOVING TO THE SIDELINES: In a research note to investors, RBC Capital's Tucker downgraded PG&E to Sector Perform from Outperform, stating that the "unexpected" dividend decision suggests greater risk than he had assumed regarding the regulatory treatment of the California wildfires in October. Tucker noted that he now expects the stock to be range-bound until the release of the Cal Fire report in the second half of next year. The analyst also lowered his price target on the shares to $50 from $66. Earlier this week, Wells Fargo analyst Neil Kalton had also downgraded PG&E to Market Perform from Outperform, lowering his price target on the shares to $60 from $67. The analyst told investors in a research note of his own that he saw "significant uncertainty" given the Northern California wildfires in mid-October and highlighted some recent adverse regulatory developments.
STOCK ALREADY DISCOUNTING FEARS: Meanwhile, Deutsche Bank analyst Jonathan Arnold lowered his price target for PG&E to $61 from $65 after the company suspended its dividend. The analyst believes the move will surely strike many investors as an excessive and maybe premature move. It also seems somewhat inevitable that it will be read to some extent as a tacit admission of guilt, or at least that PG&E knows something the market does not, such as the likelihood of an incriminating Cal Fire investigation report, said Arnold. However, he is not convinced this is necessarily a correct read. Trading around $51, the stock is "clearly already discounting fears of a significant unrecovered wildfire liability exposure," he contended. Moreover, the analyst says he is not convinced the dividend announcement changes the probability of actual liability being established any time soon. He reiterated a Buy rating on the shares.
PRICE ACTION: In morning trading, shares of PG&E have dropped about 17% to $42.44.
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