PCG 3Q2016 Earnings Note

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Auvila_PCG_Note_2016_3Q_Earnings_2016_11_04

Excerpt:

Market Price (11/4/2016): $59.84/share; ST-Target: $75/share; NIV: $111/share

MT-LT Prospects still attractive but 2017 guidance leaves us wanting

2017E AEPS guidance is $3.55-$3.75 vs. our original estimate of $3.93, which was surprising given pending regulatory relief. However, PCG is talking up MT-LT AEPS CAGR, which we agree with. As expected, hydrology returned to relatively normal for PG&E due to El Nino, but flooding was issue for 1Q206 results too. PCG may issue close to high end of $600MM-$800MM in new equity. Capex plan for 2016-2019 has not changed materially and PCG is on track to achieve 5.5%-6.5% (was 5%-7%) CAGR through 2019, but rate base is expected to be some $0.2B lower at $32.4B due to lower gas transmission rate base from 2015 GT&S rate case. We’re intrigued with PCG’s pursuit of independent transmission projects with TransCanyon. We continue to expect PCG will grow dividend through 2019. We expect dividend payout ratio to increase closer towards 60%-65% by 2019. Beyond the current pale, PG&E’s near-term investment program should drive shareholder value, and management believes it has options for LT growth too.

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