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Wells Fargo cut PG&E to Equal Weight from Overweight and lowered its price target to $24 from $25, while BMO downgraded the stock to Market Perform from Outperform and cut its target to $21 from $28. Both firms said the recently proposed SB492 failed to provide the liability protections investors had expected.

The legislation does not establish a mechanism to replenish California's Wildfire Fund after its resources are depleted, preserve a liability cap once the fund is exhausted or materially reduce potential wildfire claims, BMO said. Wells Fargo similarly noted that SB492 did not include a proposed $6 billion per-event cap, a bar on insurer subrogation or a repeal of the 2028 sunset for the continuation fund.

The lack of reform leaves investors struggling to quantify the company's long-term wildfire exposure, particularly after the Eaton Fire raised questions about the durability of the existing framework. BMO said it now assumes uncapped wildfire liabilities beyond 2030, increasing its estimated liability drag on PG&E's valuation to $10 per share from $6.

Both analysts expect management to respond with changes to capital allocation. Wells Fargo said PG&E could potentially repurchase about $3 billion of shares through 2030, or roughly $700 million to $800 million annually, by moderating rate-base growth. BMO instead sees an increased dividend as the preferred route, with a potential dividend of about $0.50 per share in 2027, while directing remaining capital toward buybacks.

BMO's estimates leave adjusted earnings per share unchanged at $1.65 in 2026, $1.82 in 2027 and $1.98 in 2028, indicating that the downgrade is driven primarily by higher assumed wildfire risk rather than weaker operating forecasts.

The downside remains substantial. BMO's valuation scenarios put PG&E at $3 per share in an adverse wildfire and regulatory outcome, compared with $35 in a scenario involving constructive wildfire reform in 2027. Its base-case target is $21.

Wells Fargo also maintained its Overweight rating on Sempra and Underweight rating on Edison International, arguing that Sempra's smaller California exposure and growing Texas transmission business make it better positioned, while Edison's investment case remains constrained by uncertainty surrounding liability from the Eaton Fire.

PG&E downgraded by Wells Fargo, BMO as California wildfire reform falls short

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