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Morgan Stanley downgrades PG&E (PCG -7.2%) based on uncertainty surrounding the California...

  • Friday, September 10, 2010, 3:10 PM ET
    Morgan Stanley downgrades PG&E (PCG -7.2%) based on uncertainty surrounding the California pipeline explosion. "If Pacific Gas & Electric is exonerated, the financial impact would likely be small," analyst Greg Gordon says. "If it is found to be at fault, the impact could be large." Such is the legacy of the BP disaster, when an accident - and a stock price - can spiral out of control.
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This news story has 9 comments:

  •  
    I live in San Francisco -- This was a major explosion. Thus far - 6 confirmed dead, over 50 injured, over 40 homes totally destroyed, numerous vehicles - Fire officials have not been able to get into all areas to complete a "search and rescue" mission or recovery mission -- the death toll is climbing (thankfully slowly). P G & E has not been able to begin to sort out how or what caused the pipe to rupture. Damage claims will unlikely begin shortly -- as stated the stock price could spiral out of control.
    10 Sep 2010, 04:15 PM Reply Like
  •  
    Due to high number of deaths and injuries, PG&E could possibly see a stock price in the teens within the next 12 months. In the short-term, a price of $34.57 is imminent.

    See Chart: stockcommentaries.blog...

    The "Institution Sellers" have already started "dumping" this stock. As retail stock traders and black pools move in, you can expect to see a gap down in the next few days.
    11 Sep 2010, 11:25 AM Reply Like
  •  
    Earthquakes and runaway trains and Gas mains don't mix very well (as we have seen in the past) but here you get a blow out with neither of the two main ingredient. You can best bet that every home and business owner within a long block of these explosive mains will now find out exactly where these mains are located and they will demand a total overhaul of those line.
    That in itself, although absolutely necessary, could take a big bite out of profits.
    11 Sep 2010, 11:34 AM Reply Like
  •  
    PG&E has a one billion dollar insurance policy. That should more then cover the cost to rebuild 40 homes and replace all of the burnt cars.

    Cost to rebuild 40 home. Probably 30 million at most. Remember the land is still there and this would give 750k per home including contents.
    Liability for the 6 deaths. Assuming PG&E is too blame, I wouldn't think that would be more then 30 million.
    50 injuries = 100 million. Liability for most injuries will probably be very small but I have the 100 million in case more people then expected have severe injuries.

    It really comes down to what you think will happen with possible fines and I doubt PG&E is insanely fined like some politicians want to do with BP.

    Since I would think insurance should cover everything except for perhaps some of the fines, PG&E out of pocket expense is probably going to be less then 100 million.

    Now whether PG&E stock is a good investment at this discounted price that is a different question but the stock market overreacted to the news out of fear.

    If the stock goes down another 2-3 dollars, I plan to buy some shares.
    11 Sep 2010, 07:44 PM Reply Like
  •  
    On May 19, 2010, BP stock price touched $68. Yesterday the price closed at $38.00.

    Don't say that I didn't warn you about "so-called" cheap stocks.

    I guess you're one of the people who can't learn from observation. You need to have the whole experience. Good luck!
    11 Sep 2010, 09:31 PM Reply Like
  •  
    wcinvest -

    750K per house in an area where house prices start around that is probably not very conservative. That's before you factor in potential lawsuits and liability for the 6 deaths. I wouldn't be too quick to jump in here.
    11 Sep 2010, 10:36 PM Reply Like
  •  
    $750k as a purchase price is for land + buildings. The land is still there, as the author points out. Replacement cost for buildings, even with a generous allowance to avoid protracted litigation, isn't likely to be much more than that. Call it $1.5m each if that makes you happy... the thesis is intact.

    The only way this goes south is if some violation of terms is proved such that claims against the insurance policy can't be made.

    Bigger problem: PCG is expensive. You could have bought it in July for less. But then again, everything is expensive; that's what happens when they print too much money.
    12 Sep 2010, 08:16 PM Reply Like
  •  
    I think you discount the power of perception. Let's see if your simplistic observation holds. Don't forget... innocent people actually died because of this, including at least one child. I think you underestimate the power of public outrage. That's why there will be more downgrades of this stock to come. But... again. Let's see if your simple math holds.
    12 Sep 2010, 09:05 PM Reply Like
  •  
    Short PCG. San Bruno blast is just tip of the iceberg. They knew there was a problem, raised rates on customers in 2006 to fix it, never fixed it though.

    This is another BP like issue in the making. Cut jobs, save money at the risk of safety.. get screwed.

    I just stopped by at a "Tea Party" rally today just out of curiosity and people had signs for "No Smart Meters" and I was like "Why not"? Find out they have been charging people $1000 instead of the previous $100 when they use during "peak hours". People are not happy.
    19 Sep 2010, 01:46 AM Reply Like
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