PG&E Stock Plunges on Wildfire Liability Setback

Shares of PG&E Corp (NYSE:PCG) are down 16.9% at $13.79 before the open, after California lawmakers advanced wildfire legislation that fell short of the liability protections utility investors had hoped for. The amended Senate Bill 492 excludes Gov. Gavin Newsom's proposal to block insurance companies from suing utilities over wildfire-related claims, raising fresh concerns about PG&E's exposure to future disasters.

Wall Street was quick to respond. Mizuho downgraded PCG to "neutral" from "outperform" and cut its price target to $16 from $21, saying the bill favors victim protections without adding investor safeguards. BMO also downgraded the shares to "market perform" from "outperform" and slashed its target to $21 from $28, while Morgan Stanley warned the legislation "falls short for shareholders" and leaves significant wildfire-related downside risk. UBS bucked the bearish trend, reiterating its "buy" rating and $22 price target, noting that the legislative session is not yet over.

The selloff comes after PCG already dropped 7.5% on Friday, when the shares breached support at their 60-day moving average, which had kept losses in check this month. Today's premarket losses have the equity on track to open at 52-week lows.  

Despite these concerns, analysts were overwhelmingly bullish coming into today. Of the 18 brokerages in coverage, 13 carried a "strong buy" rating, compared to five "hold" recommendations, leaving room for additional bear notes should sentiment continue to shift.

Options traders have also favored calls. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and Nasdaq OMX PHLX (PHLX), PCG's 50-day call/put volume ratio of 22.06 ranks higher than 98% of readings from the past year, indicating calls have been picked up at a much faster-than-usual pace.