Long-established in the Utilities - Regulated industry, PG&E Corp (PCG, Financial) has enjoyed a stellar reputation. It has recently witnessed a daily gain of 0.2%, juxtaposed with a three-month change of -0.15%. However, 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: 6/10
- Growth rank: 2/10
- GF Value rank: 5/10
- Momentum rank: 9/10
Based on the above method, GuruFocus assigned PG&E Corp the GF Score of 68 out of 100, which signals poor future outperformance potential.
Company Overview
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 post-bankruptcy reorganization. The company has a market cap of $43.94 billion, with sales amounting to $24.83 billion and an operating margin of 20.68%.
Financial Strength Breakdown
PG&E Corp's financial strength indicators present some concerning insights about the company's balance sheet health. PG&E Corp has an interest coverage ratio of 1.58, which positions it worse than 83.98% of 437 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 0.54, 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 0.02 indicates a struggle in handling existing debt levels.
The company's debt-to-equity ratio is 2.24, which is worse than 88.32% of 471 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 6.28, which is above Joel Tillinghast's warning level of 4 and is worse than 76.43% of 454 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.
Growth Prospects
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 -8% per year over the past three years, which underperforms worse than 93.78% of 482 companies in the Utilities - Regulated industry. Stagnating revenues may pose concerns in a fast-evolving market.
Lastly, PG&E Corp's predictability rank is just one star out of five, adding to investor uncertainty regarding revenue and earnings consistency.
Conclusion
In conclusion, PG&E Corp's financial strength, profitability, and growth metrics, as highlighted by the GF Score, underscore the firm's potential for underperformance. The company's high debt levels, low growth prospects, and financial distress indicators suggest that it may face significant challenges in the future. Investors should carefully consider these factors when evaluating PG&E Corp's potential for long-term success. For those seeking companies with strong GF Scores, GuruFocus Premium members can explore more options using the following screener link: GF Score Screen.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
