By Sam Boughedda
A Morgan Stanley analyst told investors in a note Monday that they see "several potential technical benefits" to the news that PG&E Corp. (NYSE:PCG) will be re-added to the S&P 500 on October 3.
The company was removed from the index in 2019, but the S&P Dow Jones Indices announced it would be re-added when it reported changes to the index after the close on Friday.
"We see several potential positive implications. In terms of trading flows, the addition to the index should drive buying of the stock by index-tracking portfolios. We think PCG could also be added to the IXU (S&P Utilities Select Sector), an index that often serves as a benchmark for investor utility portfolios," said the analyst, who has an Equal-Weight rating and $14 per share price target on the stock.
The analyst stated that some utility investors had avoided owning PCG altogether due to the "unique wildfire risks" for the business and because it often was not included in typical utility benchmarks.
"The S&P 500 inclusion could bring these investors back to the stock and drive additional focus on the story given they may now need to more fully reconsider the relative valuation and weighting of PCG vs. the broader utility sector," added the analyst. "The new shareholders coming in from the index addition could help to provide liquidity to the extent any new shares came to the market."
Elsewhere Monday, a UBS analyst said in a note that the company's S&P 500 inclusion "provides buying pressure and ongoing visibility for the stock."
"PCG trades at 9x our 2024 EPS estimate of $1.36, which represents 43% of upside to our price target. The potential upside represents a $10.7 billion equity market cap discount that is unquantifiable, in our view, since our valuation already reflects discounts for imprudent wildfire mitigation through 2030 and $2 billion for resolving legacy wildfire liability," wrote the analyst, who has a Buy rating and $18 price target on PCG.