Pacific Gas & Electric Co. (PCG) stock climbed 1.0 % this morning. According to our metrics, the company seems overvalued at today's prices. In the below analysis, we will put Pacific Gas & Electric Co.'s valuation in the context of its poor growth indicators and positive market sentiment, which are also strong drivers for share price.
PG&E Corporation, through its subsidiary, Pacific Gas and Electric Company, engages in the sale and delivery of electricity and natural gas to customers in northern and central California, the United States. It generates electricity using nuclear, hydroelectric, fossil fuel-fired, fuel cell, and photovoltaic sources. The large-cap Utilities company is based in Oakland, United States and has 26,010 full time employees.
PCG's P/E Ratio Is Comparable to its Sector Average
Compared to the Utilities sector's average of 22.89, Pacific Gas & Electric Co. has a trailing twelve month price to earnings (P/E) ratio of 18.3 and an expected P/E ratio of 12.2. P/E ratios are calculated by dividing the company's share price by either its trailing 12 month ($0.9) or forward earnings per share ($1.35).
Earnings is another term for the net profits left over after subtracting cost of goods sold, taxes, and operating costs from the company's recorded sales revenue. One way of looking at the P/E ratio is that it represents how much investors are willing to pay for every dollar's worth of the company's earnings. Since Pacific Gas & Electric Co.'s P/E ratio is near its sector average of 22.89, we can deduce that the market is fairly valuing the company's earnings.
Pacific Gas & Electric Co. Is Overvalued in Terms of Expected Growth
Pacific Gas & Electric Co.'s PEG ratio is 3.06. This metric represents the company's earnings per share divided by its expected growth ratio, and is a useful complement to the price to earnings analysis, because it factors in growth to the valuation. A PEG ratio around or below 1 implies that the market in fairly valuing the company in terms of its growth estimates. But when the PEG ratio is higher, as in Pacific Gas & Electric Co.'s case, it tells us the company is overvalued.
PCG Has an Average P/B Ratio
Traditionally, stock pickers used to focus primarily on finding issues that were trading significantly below their tangible asset value, to guarantee themselves a margin of safety. But such an approach would screen out many valuable securities because many profitable businesses -- especially those that heavily leverage information technology -- simply do not have many tangible assets compared to more capital intensive companies.
Therefore, modern value investors tend to focus less on absolute price to book value (P/B) ratios. Instead of singling out stocks with a P/B ratio of less than 1, they will compare the target company against its peer group. For Pacific Gas & Electric Co., the P/B value is 1.43 while the average for the Utilities sector is 1.03.
PCG's Weak Cash Flow Generation Is Troubling
The table below shows that Pacific Gas & Electric Co. is not generating enough cash. A well run company will generally have cash flows that reflect the strength of its underlying business, and in Pacific Gas & Electric Co.'s case, free cash flow is growing at an average rate of 0.0% with a coefficient of variability of 312735801134.8%. We can also see that cash flows from operations are evolving at a 0.0% rate, versus 0.0%:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cash Flow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2023-02-23 | 3,721,000 | -9,584,000 | 13,305,000 | 44.59 |
| 2022-02-10 | 2,262,000 | -6,940,000 | 9,202,000 | 180.44 |
| 2021-02-25 | -19,130,000 | -7,690,000 | -11,440,000 | -202.79 |
| 2020-03-31 | 4,816,000 | -6,313,000 | 11,129,000 | -1.22 |
| 2019-04-30 | 4,752,000 | -6,514,000 | 11,266,000 | -3.03 |
| 2018-02-09 | 5,977,000 | -5,641,000 | 11,618,000 |
Pacific Gas & Electric Co.'s Is a Profitable Business
If you are looking to make PCG a long term investment, it's essential that you understand the viability of its business through a study of its margins. Gross margins tell you how much the company makes in profit when only the costs directly related to producing the goods or delivering the service are taken into account. Operating margins, on the other hand, factor in overhead costs so they tell you how effectively Pacific Gas & Electric Co. is run.
Pacific Gas & Electric Co.'s Gross Margins
| Date Reported | Revenue ($ k) | Cost of Revenue ($ k) | Gross Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2023-02-23 | 21,680,000 | -14,665,000 | 32 | 14.29 |
| 2022-02-10 | 20,642,000 | -14,581,000 | 28 | -12.5 |
| 2021-02-25 | 18,469,000 | -12,582,000 | 32 | -58.97 |
| 2020-03-31 | 17,129,000 | -3,829,000 | 78 | 6.85 |
| 2019-04-30 | 16,759,000 | -4,499,000 | 73 | 4.29 |
| 2018-02-09 | 17,135,000 | -5,055,000 | 70 |
Pacific Gas & Electric Co.'s Operating Margins
| Date Reported | Total Revenue ($ k) | Operating Expenses ($ k) | Operating Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2023-02-23 | 21,680,000 | -4,333,000 | 12 | 20.0 |
| 2022-02-10 | 20,642,000 | -3,920,000 | 10 | -9.09 |
| 2021-02-25 | 18,469,000 | -3,881,000 | 11 | 37.5 |
| 2020-03-31 | 17,129,000 | -11,959,000 | 8 | -33.33 |
| 2019-04-30 | 16,759,000 | -10,189,000 | 12 | -29.41 |
| 2018-02-09 | 17,135,000 | -9,175,000 | 17 |
Pacific Gas & Electric Co.'s cost of revenue is growing at a rate of -0.0% in contrast to 9.4% for operating expenses. Sales revenues, on the other hand, have experienced a 0.0% growth rate. As a result, the average gross margins growth is 0.2 and the average operating margins growth rate is -5.2, with coefficients of variability of 45.5% and 25.8% respectively.
Pacific Gas & Electric Co. Benefits From Positive Market Signals
The market sentiment regarding Pacific Gas & Electric Co. is overwhelmingly positive. The stock has an average rating of buy and target prices ranging from $21.0 to $14.0. PCG is trading -15.42% away from its target price of $19.46. 1.7% of the company's shares are tied to short positions, and 74.2% of the shares are held by institutional investors.
| Date Reported | Holder | Percentage | Shares | Value |
|---|---|---|---|---|
| 2023-06-30 | Vanguard Group Inc | 10% | 246,675,783 | $4,060,036,622 |
| 2023-06-30 | FMR, LLC | 7% | 171,985,300 | $2,830,705,989 |
| 2023-06-30 | Blackrock Inc. | 6% | 144,035,914 | $2,370,687,055 |
| 2023-06-30 | Capital Research Global Investors | 5% | 129,917,458 | $2,138,311,393 |
| 2023-06-30 | Capital International Investors | 4% | 101,021,577 | $1,662,714,098 |
| 2023-06-30 | JP Morgan Chase & Company | 4% | 93,897,501 | $1,545,458,934 |
| 2023-06-30 | State Street Corporation | 3% | 88,758,535 | $1,460,876,695 |
| 2023-06-30 | Massachusetts Financial Services Co. | 3% | 65,341,888 | $1,075,462,110 |
| 2023-06-30 | Third Point, LLC | 2% | 54,000,000 | $888,785,980 |
| 2023-06-30 | Blackstone Inc | 2% | 48,078,945 | $791,331,338 |
