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 0.45%, juxtaposed with a three-month change of -7.53%. 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.
What Is 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: 3/10
- GF Value rank: 5/10
- Momentum rank: 7/10
Based on the above method, GuruFocus assigned PG&E Corp the GF Score of 69 out of 100, which signals poor future outperformance potential.
Understanding PG&E Corp's Business
PG&E Corp, with a market cap of $43.44 billion and sales of $24.43 billion, operates primarily through its main subsidiary, Pacific Gas and Electric. This regulated utility serves 5.3 million electricity customers and 4.6 million gas customers across Central and Northern California. The company's operating margin stands at 16.38%. PG&E Corp navigated through bankruptcy court supervision from January 2019 to June 2020 and has a history of restructuring, including the sale of its unregulated assets in 2004.
Financial Strength Breakdown
PG&E Corp's financial strength indicators present some concerning insights about the company's balance sheet health. The company's interest coverage ratio of 1.4 positions it worse than 87.47% of companies in the Utilities - Regulated industry. This ratio, which is far below Benjamin Graham's preferred minimum of five, highlights potential challenges in managing interest expenses on outstanding debt.
The company's Altman Z-Score of just 0.46 falls below the distress zone threshold of 1.81, indicating a risk of financial distress. Furthermore, the low cash-to-debt ratio of 0.01 and a debt-to-equity ratio of 2.31, which is worse than 90% of industry peers, suggest an over-reliance on borrowing. The debt-to-Ebitda ratio of 7.92 exceeds Joel Tillinghast's cautionary level of 4, further underscoring the company's financial leverage concerns.
Growth Prospects
PG&E Corp's growth trajectory appears limited, as reflected by its low Growth rank. The company's revenue has declined by an average of 8% per year over the past three years, which is worse than 94.27% of companies in the Utilities - Regulated industry. This decline in revenue, in a market that demands constant evolution, raises red flags about the company's ability to adapt and grow.
Moreover, PG&E Corp's predictability rank is a low one star out of five, adding to investor uncertainty regarding the consistency of revenue and earnings.
Next Steps
Considering PG&E Corp's financial strength, profitability, and growth metrics, the GF Score highlights the firm's unparalleled position for potential underperformance. The company's financial leverage, declining revenue, and low predictability rank create a challenging environment for future growth. Investors seeking companies with strong GF Scores can explore further using the GF Score Screen. As PG&E Corp navigates through these financial and operational hurdles, will it manage to steer back towards a path of stability and growth, or will these challenges mark the onset of a prolonged period of underperformance?
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.
