Bank of America Downgrades PG&E to Neutral, Slashes Price Target on Wildfire Law Disappointment

Bank of America downgraded PG&E Corp. (NYSE:PCG) to Neutral from Buy on Tuesday, citing new California wildfire legislation that it says fails to adequately address the utility's long-term liability risks. The bank also sharply reduced its price objective on the stock to $13 from a previous $24.

Legislative Shortcomings Prompt Downgrade

The downgrade follows the passage of Senate Bill 492. According to BofA's analysis, while the bill improves protections for wildfire survivors, it does not provide the "durable liability and financing framework" necessary to support PG&E's significant investment plans.

Analysts at the bank noted that the legislation leaves key utility risks unresolved. Specifically, it does not materially reform critical issues such as inverse condemnation—a legal doctrine holding utilities strictly liable for wildfire damages from their equipment—or insurance subrogation.

Impact on Growth and Capital Plans

BofA argued that the current regulatory framework is insufficient to support PG&E's ambitious $73 billion capital plan through 2030. The utility's target for annual earnings-per-share (EPS) growth of more than 9% from 2027 to 2030 was predicated on a more favorable liability environment.

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As a result of the legislative gaps, BofA now assumes in its own modeling that PG&E will remove $7.3 billion from its planned investments, stressing this is not company guidance. This reduction would lower the utility's projected EPS growth to approximately 7% through 2030, according to the bank's revised forecast.

Outlook for Investors

A potential cut in capital spending could shift PG&E's investment profile toward a higher-income, lower-growth stock. BofA modeled a scenario where the foregone $7.3 billion is returned to shareholders, which could lift the dividend yield to about 6.5%, though it cautioned PG&E has not announced such a plan.

Significant uncertainties remain, according to the note. The state's Wildfire Fund is seen as a central vulnerability, and the path to achieving investment-grade credit ratings is now less certain. Investors will be closely watching PG&E's investor update on Wednesday for official guidance on capital spending, growth targets, and shareholder return policies.