PG&E Corp (PCG)

Conclusion

PG&E Corporation, through its subsidiary Pacific Gas and Electric Company, sells electricity and natural gas to residential, commercial, industrial and agricultural customers in northern and central California. On 2026-11-09 the share price was 13.14 USD, giving a market capitalisation of 28.94 billion USD and an enterprise value of 93.52 billion USD.

The verdict is undervalued. The fair value band runs from 14.55 to 21.82 USD with a midpoint of 18.19 USD, and the margin of safety is 38.4% at the current price. Today's EV/EBITDA of 8.5x compares with a ten-year median of 11.3x, price-to-sales of 1.1x with 1.4x, and price-to-book of 0.84x with 1.16x. The discounted cash flow value is not available because free cash flow is negative. The fair value from historical multiples is 18.19 USD. The reverse DCF is not available, so the growth the price implies cannot be set against delivered growth. Delivered revenue growth was 6.2% a year over five years, and EPS grew 13.0% a year over three years.

The case rests on the operating margin of 20.2% against a median of 15.1%, a Beneish M-score of -2.30 that reads as unlikely manipulation, and revenue growth in seven of ten years. It breaks on free cash flow conversion of -161.0% on a trailing basis, net debt to EBITDA of 5.9x, and interest coverage of 1.9x. The Altman Z-score of 0.48 sits in the distress zone.

Financial health

Financial strength is red: net debt to EBITDA of 5.9x, interest coverage of 1.9x and an Altman Z-score of 0.48 all pull it down, and no metric holds it up. The current ratio of 1.03 and quick ratio of 0.78 are close to one, and debt to equity is 1.89x. The Altman model was designed for manufacturers, and PG&E is a regulated utility, so its zone reading of distress should be read with that limit in mind. Insolvency risk: low, about 1.1% by the estimate of the Ohlson model over one to two years. The estimate points to a low probability, but the leverage and thin interest coverage above are the reasons to watch it.

Earnings quality

Earnings quality is red. Free cash flow conversion is -161.0% on a trailing basis and -235.5% over five years, and free cash flow after stock-based compensation is -4.98 billion USD, so reported profits are not turning into cash. The accrual ratio of -4.4% is a supportive sign. The share count grew at a compound 11.9% a year over five years, which is dilution rather than buybacks. The Piotroski score is 4 out of 9. The Beneish M-score of -2.30 is unlikely to signal manipulation. Stock-based compensation to revenue is not available because the company does not report it. Over the last eight quarters the company beat estimates four times and missed four times, with an average surprise of 1.3%. Estimate revisions for the current year were flat over 90 days, and next year's were -0.2%.

Profitability

Profitability is green. The operating margin of 20.2% compares with a ten-year median of 15.1%, and the net margin of 12.0% with a median of 8.2%. Gross margin is 66.9%. The return on invested capital is 6.2% against a weighted average cost of capital of 6.1%, a roicMinusWacc of 0.1%, which is neutral: the business earns roughly its cost of capital. The five-year median ROIC is 4.3%. Return on equity is 8.9%. The DuPont split shows a net margin of 10.8%, asset turnover of 0.18 and an equity multiplier of 4.35, so leverage does much of the work in the equity return.

Growth

Growth is green. Revenue compounded at 4.8% a year over three years, 6.2% over five years and 4.0% over ten years. Revenue grew in seven of the last ten years. EPS grew at 13.0% a year over three years, but it fell at -3.9% a year over ten years, so the recent recovery follows a longer decline. Consensus expects next year's EPS to grow 9.3%. The gap between the three-year and ten-year EPS figures shows how uneven the earnings path has been.

Valuation

Valuation is green. Against their ten-year medians, EV/EBITDA is at a premium of -25.0%, price-to-sales at -21.2% and price-to-book at -27.8%. The price-to-earnings ratio of 9.4x has too few historical points for a median. The fair value band is 14.55 to 21.82 USD, with a midpoint of 18.19 USD and a margin of safety of 38.4%. The discounted cash flow value is not available because free cash flow is negative. The discount rate used is 8.9% and the terminal growth rate 2.5%. The fair value band is an order-of-magnitude estimate built on fixed assumptions, not a price target. The reverse DCF is not available. The dividend yield is 1.6% and the forward yield 1.5%. Payout on free cash flow is not available because free cash flow is negative.

Risks

The main risk is cash generation. Free cash flow conversion of -161.0% means the business currently spends more than it earns in cash terms, and the -4.98 billion USD free cash flow after stock-based compensation has to be funded. Net debt to EBITDA of 5.9x and interest coverage of 1.9x leave little room if earnings fall, and rising interest costs would squeeze coverage further. Continued share issuance, at 11.9% a year over five years, dilutes existing holders. The Altman distress reading and the low insolvency estimate point in different directions, and the Altman model does not fit a utility well. Not available: the discounted cash flow value, the reverse DCF, stock-based compensation and the ten-year median for the price-to-free-cash-flow ratio. This analysis has no debt maturity schedule and no revenue by segment, so it cannot show when debt must be refinanced or which parts of the business drive revenue.