Sanford C. Bernstein & Co. LLC Analyst Hugh Wynne says that both Edison International (EIX) and PG&E Corporation (PCG) are trading at material discounts to their peers. He says both stocks are trading at about a 15% discount as a result of regulatory uncertainty that he believes will be resolved in the near term.
“The reason for those discounts is an overhang of regulatory uncertainty, in the case of PG&E with respect to the penalty for the San Bruno gas pipeline explosion and in the case of Edison, the shutdown of its San Onofre nuclear power plant,” Wynne says. “We basically think that these discounts compensate and indeed materially overcompensate for the risk of those two regulatory overhangs.”
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Wynne says he expects that when the penalty for San Bruno is levied by the CPUC, and when the decision is made about cost recovery at San Onofre by the CPUC that Edison International and PG&E will begin to trade close to their peers. In fact, he says that in a more favorable regulatory environment, he expects both stocks to trade at a premium to the peer group.
“But for now, they allow investors to have access to very high quality regulated utility franchises at a discount to their fair value,” Wynne says.
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