PG&E Corp (PCG, Financial) experienced a daily loss of 1.63%, translating to a 3.1% loss over the past three months. With an Earnings Per Share (EPS) (EPS) of 0.91, it raises the question: is the stock significantly overvalued? This article seeks to answer this question through an in-depth valuation analysis. We invite you to join us as we unravel the intrinsic value of PG&E (PCG).
PG&E Corp (PCG, Financial) is a holding company whose main subsidiary, Pacific Gas and Electric, operates in Central and Northern California. Serving 5.3 million electricity customers and 4.6 million gas customers in 47 of the state's 58 counties, PG&E has a significant presence in the regulated utility industry. The company's history includes a period of bankruptcy court supervision from January 2019 to June 2020 and the sale of its unregulated assets in 2004. Despite its challenges, PG&E has a market cap of $40.70 billion and a current stock price of $16.26, which is higher than its GF Value of $12.34.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It's calculated based on historical trading multiples, a GuruFocus adjustment factor based on the company's past performance and growth, and future business performance estimates. The GF Value Line provides a visual representation of the stock's fair trading value. If the stock price is significantly above the GF Value Line, it is considered overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
According to this valuation method, PG&E (PCG, Financial) appears to be significantly overvalued. This suggests that the long-term return of its stock is likely to be much lower than its future business growth.These companies may deliver higher future returns at reduced risk.
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before purchasing its shares. Key indicators such as the cash-to-debt ratio and interest coverage can provide an initial perspective on the company's financial health. PG&E has a cash-to-debt ratio of 0.01, ranking worse than 95.45% of 484 companies in the Utilities - Regulated industry. This poor ranking suggests that PG&E's financial strength is questionable.
Profitability and Growth
Consistent profitability over the long term reduces the risk for investors. PG&E has been profitable for six of the past ten years. Over the past twelve months, the company had a revenue of $22.30 billion and an EPS of $0.91. However, its operating margin of 9.35% ranks worse than 56.89% of 501 companies in the Utilities - Regulated industry, indicating fair profitability.
Growth is a vital factor in a company's valuation. The faster a company grows, the more likely it is to be creating value for shareholders, especially if the growth is profitable. Unfortunately, PG&E's 3-year average annual revenue growth rate is -32.1%, ranking worse than 98.76% of 484 companies in the Utilities - Regulated industry. Its 3-year average EBITDA growth rate is 0%, ranking worse than 0% of 459 companies in the same industry.
Return on Invested Capital Vs. Weighted Average Cost of Capital
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) can provide insights into its profitability. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, PG&E's ROIC is 7.59, and its WACC is 5.98.
In summary, PG&E (PCG, Financial) appears to be significantly overvalued. The company's financial condition is poor, and its profitability is fair. Its growth ranks worse than 0% of 459 companies in the Utilities - Regulated industry. To learn more about PG&E stock, you can check out its 30-Year Financials here.
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