PG&E Beats, Reaffirms Guidance - Analyst Blog

By Zacks Equity Research,

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PG&E Corporation 's ( PCG ) operating earnings per share of 89 cents in the fourth quarter of fiscal 2011 went past the Zacks Consensus Estimate of 85 cents and the year-ago number of 70 cents.

In the reported quarter, the positive variance of 19 cents year over year was attributable to an increase in rate base earnings (10 cents), absence of nuclear refueling outage (6 cents), absence of SmartMeter installation costs (5 cents), lower litigation & regulatory matters (4 cents) and lower storm & outage expenses (1 cent). These were partially offset by miscellaneous items (4 cents) and the dilutive effect of higher shares outstanding (3 cents).

On a reported basis, the company clocked earnings per share of 20 cents compared with 63 cents in the year-ago quarter. In the reported quarter, the 69-cent difference between the reported and adjusted earnings was due to matters (natural gas pipeline-related costs, penalties, third-party liability claims, and insurance recoveries) related to a natural gas transmission pipeline accident in San Bruno, California on September 9, 2010 and environmental costs.

Fiscal 2011 operating earnings came in at $3.58 per share, beating the Zacks Consensus Estimate of $3.53. The reported figure was higher than fiscal 2010 earnings of $3.42 per share. On a reported basis, fiscal 2011 earnings were $2.10 per share versus fiscal 2010 earnings of $2.82 per share.

Fiscal 2011 Revenue Update

PG&E's revenue increased 8.1% to approximately $15.0 billion in fiscal 2011 versus $13.8 billion in fiscal 2010, ahead of the Zacks Consensus Estimate of $14.5 billion. Electric revenues rose 9.0% year over year to $11.6 billion, while Natural Gas revenues rose 4.8% to $3.4 billion.

Financial Condition

PG&E ended fiscal 2011 with cash and cash equivalents of approximately $513 million compared with $291 million at year-end 2010. Cash generated from operations in 2011 totaled $3.7 billion versus cash from operations of $3.2 billion in the year-ago period. Long-term debt increased to $11.8 billion at fiscal 2011 end from roughly $10.9 billion at the end of fiscal 2010.


PG&E reaffirmed its fiscal 2012 operating earnings guidance range of $3.10-$3.30 per share.


Going forward, PG&E will continue to focus on investing new capital, consistent with California's focus on clean energy. The company is mandated by California's renewable energy portfolio standard to raise its renewable generation. California's renewable portfolio standard requires utilities to generate 33% of power from renewable sources by fiscal 2020.

We believe, going forward, favorable decisions from regulators, long-term supply contracts, diversification into alternative power sources and infrastructure improvement programs (such as Cornerstone and Smart Meter) will bode well for the company.

These positives, however, will be partially offset by risks, including the present tepid macro backdrop, headwinds in the California economy, earnings dilutive issuances and power-price volatility.

We have a Zacks #4 Rank (short-term Sell rating) on the stock. This implies that the stock is expected to perform lower versus the broader U.S. equity market over the next 1-3 months. Consequently, we advise investors not to take any position on the stock for the time being.

In the near-term, we would advise investors to focus on its Zacks #1 Rank (short-term Strong Buy rating) peers like Huaneng Power International Inc. ( HNP ) and Pike Electric Corporation ( PIKE ).


HUANENG POWER ( HNP ): Free Stock Analysis Report
PG&E CORP ( PCG ): Free Stock Analysis Report
PIKE ELECTRIC ( PIKE ): Free Stock Analysis Report
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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: HNP , PCG , PIKE

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