Long-established in the Utilities - Regulated industry, PG&E Corp (PCG, Financial) has enjoyed a stellar reputation. However, it has recently witnessed a daily loss of 1.87%, juxtaposed with a three-month change of -0.71%. Fresh insights from the GF Score hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of PG&E Corp.
Understanding the GF Score
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
- Financial strength rank: 3/10
- Profitability rank: 5/10
- Growth rank: 1/10
- GF Value rank: 1/10
- Momentum rank: 9/10
Based on the above method, GuruFocus assigned PG&E Corp the GF Score of 55 out of 100, which signals poor future outperformance potential.
Snapshot of PG&E Corp's Business
PG&E Corp is a holding company whose main subsidiary is Pacific Gas and Electric, a regulated utility operating in Central and Northern California. It serves 5.3 million electricity customers and 4.6 million gas customers in 47 of the state's 58 counties. PG&E operated under bankruptcy court supervision between January 2019 and June 2020. In 2004, PG&E sold its unregulated assets as part of an earlier postbankruptcy reorganization. The company has a market cap of $42.07 billion and reported sales of $22.26 billion. Its operating margin stands at 9.35%.
Financial Strength Analysis
PG&E Corp's financial strength indicators present some concerning insights about the company's balance sheet health. The company has an interest coverage ratio of 0.89, which positions it worse than 94.91% of 432 companies in the Utilities - Regulated industry. This ratio highlights potential challenges the company might face when handling its interest expenses on outstanding debt. It's worth noting that the esteemed investor Benjamin Graham typically favored companies with an interest coverage ratio of at least five.
The company's Altman Z-Score is just 0.45, which is below the distress zone of 1.81. This suggests that the company may face financial distress over the next few years. Additionally, the company's low cash-to-debt ratio at 0.01 indicates a struggle in handling existing debt levels.
The company's debt-to-equity ratio is 2.35, which is worse than 90.13% of 456 companies in the Utilities - Regulated industry. A high debt-to-equity ratio suggests over-reliance on borrowing and vulnerability to market fluctuations. Additionally, the company's debt-to-Ebitda ratio is 8.18, which is above Joel Tillinghast's warning level of 4 and is worse than 83.52% of 443 companies in the Utilities - Regulated industry. Tillinghast said in his book “Big Money Think's Small: Biases, Blind Spots, and Smarter Investing” that a high debt-to-Ebitda ratio can be a red flag unless tangible assets cover the debt.
PG&E Corp's low Profitability rank can also raise warning signals. PG&E Corp's Operating Margin has declined over the past five years ((-22.59%)), as shown by the following data: 2018: 12.36; 2019: 7.83; 2020: 10.86; 2021: 10.37; 2022: 9.57; .
A lack of significant growth is another area where PG&E Corp seems to falter, as evidenced by the company's low Growth rank. The company's revenue has declined by -32.1 per year over the past three years, which underperforms worse than 98.56% of 486 companies in the Utilities - Regulated industry. Stagnating revenues may pose concerns in a fast-evolving market. Lastly, PG&E Corp predictability rank is just one star out of five, adding to investor uncertainty regarding revenue and earnings consistency.
Given PG&E Corp's financial strength, profitability, and growth metrics, the GF Score highlights the firm's unparalleled position for potential underperformance. While the company has a rich history and a significant market presence, its current financial indicators suggest that it may struggle to maintain its past performance levels. Investors should consider these factors when making investment decisions.
GuruFocus Premium members can find more companies with strong GF Scores using the following screener link: GF Score Screen