PG&E shares slide 10% on worry of potential liability in California wildfires

Shares of California utility PG&E Corp. slid another 10% Monday on continued concerns about the company’s potential liability from the California wildfires, although analysts said the selling was overdone.

PG&E

PCG, -8.11%

 stock fell 10% on Friday, after the company warned regulators are investigating the possible role of downed power lines in the wildfires that have swept across northern California counties, killing at least 40 people and leaving hundreds yet unaccounted for. The past three sessions have wiped out more than $8 billion of market capitalization.

The fires have raged for more than a week, fanned by powerful winds, and are still not completely contained. On Monday, residents of some Northern California communities were allowed to return to their homes, but nearly 75,000 people remained out of their homes as of Sunday.

Firefighters are battling 15 large wildfires across the state.

PG&E said in a filing Friday it may face some liability stemming from the wildfires. California’s utilities regulator has launched an investigation into whether assets owned by the utility played a role in igniting the fires.

The company said it has about $800 million in liability insurance for potential losses, but if the amount of insurance is insufficient to cover its liability or if insurance is otherwise unavailable, “PG&E Corporation’s and the Utility’s financial condition or results of operations could be materially affected.”

Even in a “extreme” liability scenario, PG&E shares are worth $60, analysts at J.P. Morgan said in a note Monday that reiterated the investment bank’s “buy” rating on the stock. They lowered their price target to $66 from $76, to account for a “worst-case” liability. The $66 price target represents upside of 13% over Monday’s prices.

Analysts at RBC Capital lowered their price target on PG&E shares to $68 from $70, saying the company’s “risk profile is greater” following reports that the wildfires might have been caused by downed power lines.

While it is too early to determine responsibility, it is possible that shareholders “will bear responsibility for some damages,” they said.

It will be at least six months, likely more, before the cause of the fires are known and an official report is issued, according to analysts.

“The key factor to watch is whether (PG&E) lines started the fire and, if so, whether there are signs of negligence,” the RBC analysts said.

California blamed PG&E for the 2015 Butte fire, which left 2 people dead and destroyed nearly 1,000 buildings around the Sierra Nevada foothills. In comparison, the Napa and Sonoma counties’ fire has destroyed at least 2,000 buildings.

In 2010, a PG&E gas pipeline explosion killed 8 people and led to fines around $1.6 billion for the company.

“We expect headline risks and selling pressures to persist over the coming weeks, making the stock less attractive,” the RBC analysts said. They kept their “buy” rating on the stock to reflect the belief that PG&E is not at fault.

Shares of PG&E have fallen more than 12% so far this year, which compares to gains of more than 14% for the S&P 500 index.

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