Shares of PG&E (PCG) are sliding after the California Department of Forestry and Fire Protection found that 12 wildfires in October 2017 in Northern California were caused by electric power and distribution lines, conductors and the failure of power poles. Cal Fire's investigations have been referred to county District Attorney's offices for review in eight of those fires. Commenting on the news, Wells Fargo analyst Neil Kalton told investors that he sees the report as "incrementally negative" for the company, while his peer at Morgan Stanley argued that PG&E won't realize "anywhere close" to all Northern California fire blame. 'INCREMENTALLY NEGATIVE' FOR PG&E: Commenting on Cal Fire's findings, Deutsche Bank analyst Jonathan Arnold noted that this brings the total number of completed investigations to 16 since the first four reports were released ahead of Memorial Day weekend. Of 12 new reports, PG&E lines were found to have been involved in starting all or most of them, he pointed out, adding that Cal Fire referring eight of the 12 new reports to relevant county district attorney offices was the most negative individual data point on Friday. Arnold reiterated a Buy rating on PG&E shares. Highlighting that Cal Fire's reports stated that PG&E's infrastructure was involved in all 12 fires and that there was evidence that the company violated state laws in 8 fires, Wells Fargo's Kalton told investors in a research note of his own that he sees the development as "incrementally negative" as it further casts PG&E in a "bad light." While he thinks PG&E's shares reflect an "overly onerous outcome," Edison International (EIX) remains his preferred play for a California regulatory recovery. Kalton reiterated a Market Perform rating on PG&E shares and lowered his price target on the stock to $46 from $48. Meanwhile, his peer at Citi argued that the California fires being referred to the district attorneys is a negative for PG&E as it opens up potential criminal proceedings. Analyst Praful Mehta added that he is surprised that Cal Fire is issuing press releases without listing any specific violations and without sharing the full reports. The analyst reiterated a Neutral rating on PG&E shares, saying he believes the downside risk to PG&E stock is increasing. LIABILITY: After Cal Fire's report, Morgan Stanley analyst Stephen Byrd estimated that PG&E is likely not liable for about 34% of damages reported on to date, while the report on the largest fire has not yet been issued. Among the three largest fires assessed to date, one had no reported PG&E violations, one had a reported violation, and one has a "complex fact pattern," Byrd pointed out. The analyst believes it is unlikely PG&E shareholders will realize "anywhere close to 100% of both causation and negligence" for all 21 NorCal wildfires. He reiterated an Overweight rating on PG&E shares. Guggenheim analyst Shahriar Pourreza also commented on the news this morning, telling investors that "all signs seem to point" to PG&E "being imprudent operators in the majority of instances." This means the company should assume liability, he contended. Pourezza reiterated a Sell rating on PG&E shares, calling for potentially further downside, especially when the Tubbs investigation is released. PRICE ACTION: In morning trading, shares of PG&E have dropped almost 5% to $39.58.
