PG&E (PCG) drops 19% on wildfire bill
PG&E (PCG) shares fell 19%, a story tied only to this stock. The cause is new California legislation on wildfire liability. The bill protects wildfire victims but leaves out protection for PG&E on the wildfire fund. It has no permanent way to refill California's $21 billion wildfire fund. It also keeps the link between the fund's health and utility liability limits mostly in place.
This triggered several downgrades:
- Wells Fargo cut it to equal weight from overweight and lowered its price target to $24 from $25.
- One firm cut it to market perform and dropped its target to $21 from $28, saying the bill does nothing to secure the fund's long-term health.
- Mizuho moved to neutral and cut its target to $16 from $21, saying the bill fails to deliver either a refill mechanism or a permanent, well-funded backstop.
The worry goes back to 2019, before the pandemic. PG&E filed for Chapter 11 bankruptcy that year because of wildfire liabilities and came out in July 2020. Wildfires happen in California, and there is fear the company could end up where it was in 2019. Investors are selling first and asking questions later.
Edison International (EIX), also in electric power distribution, fell along with it, down 20% today.
GameStop (GME) rises 5% on preliminary results
GameStop (GME) shares were higher in the pre-market and up more than 5% in early trading. The video game retailer put out preliminary second quarter results. It expects net income of $290 million to $310 million, up from $169 million a year ago.
The profit jump is mostly from investments. There is a $238 million gain tied to its eBay (EBAY) position. This was partly offset by a $75 million loss on its digital assets, among other factors. Sales are expected to fall as much as 20%. Part of that comes from store closures, the sale of its French operations, and tougher comparisons against the Nintendo Switch 2.
GameStop also amended the exchange of about $1.4 billion in convertible notes. The remaining amount will now be settled in cash rather than stock.
The stock has been under pressure. It was down more than 10% year to date coming into today, and worse over the past year, down 18% over one year. As a meme stock, it has done little over three years. Investors today are scooping up beaten-down shares.
Deere (DE) gains on Baird upgrade
Deere (DE) is up 2.5% today and up 31% this year, outperforming the S&P 500. Baird upgraded it to outperform from neutral and raised its price target to $800 from $640, which implies more than 25% upside from Friday's close. Baird says it has "the cleanest setup" in the sector because of its heavy exposure to North American row crop farming.
Two forces are driving the stock. One is a recovery story: investors expect the farm cycle to turn and demand for farm equipment to rise. The other is that Deere has become an AI story, similar to Caterpillar (CAT), through the type of machinery it sells, tied to AI data center demand. Caterpillar's run has been bigger, but both are outperformers.
