Since we wrote about PG&E (PCG, Financial) in May, the Company has continued to close the valuation gap with its regulated peer group. Over the third quarter PCG’s stock rose 25% versus a 6% decline in the XLU (a proxy for the S&P 500 Utilities Sector). Outperformance was driven by the S&P 500 indexing announcement and continued execution by Patti Poppe, the recently hired CEO, and her team. Management has focused its efforts on mitigating physical and financial risk by building in layers of protection against catastrophic wildfires, financial uncertainty, and rate-payer volatility. Importantly for a utility company, Ms. Poppe has a plan to make much needed investments in safety, reliability, and service quality via capital investment while simultaneously reducing operating expenses.
Despite the recent move, we are optimistic about the Company's prospects with industry leading 10% EPS growth and likely dividend reinstatement in 2023. PG&E, which currently trades at a 6x discount to peers on ’23 earnings, should continue to re-rate as investors become more familiar with the enhanced regulatory framework under AB1054 and build further confidence in management’s execution capabilities.
From Daniel Loeb (Trades, Portfolio)'s Third Point third-quarter 2022 letter.
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