PG&E Corp shares plunged as much as 36% in pre-market trading on Thursday after the utility was stripped of exclusive control over its bankruptcy process and a judge allowed competing plans from wildfire victims and bondholders to advance.
The surprise turn of events led Citi analysts to cut the stock to sell and slash their 12-month price target to a Street-low of $5 per share. There’s a 75% probability the California power company’s stock will fall to zero, analysts led by Praful Mehta cautioned clients in a note.
While Citi paints the bleakest picture on Wall Street, analysts from Evercore ISI to Morgan Stanley agreed that the competing bankruptcy plans could leave PG&E holders with worthless stakes.
The stock fell 28% to $7.85 in New York, paring some earlier losses, yet still poised to trade to its lowest price since January in regular trading.
Here’s what the Street is saying: Citi, Praful Mehta: Citi had seen US Bankruptcy Judge Dennis Montali “leaning the other way” before he ruled to end the company’s exclusive control over the process.
Mehta now expects a bidding war with Tort Claimants Committee’s (TCC) or bondholders.
“PG&E now likely pushes for claim estimation given limited ability (high basis, financing) to get into bidding war to settle with TCC. Bond holder group has higher opportunity to win.”
Cuts the stock to sell from neutral, price target cut to $5 from $12 to reflect 75% chance stock goes to zero, 25% chance of a settlement with the TCC and claims payments ranging from lower than $18.9bn to $25.5bn.
Evercore ISI, Greg Gordon: With reorganisation plans now in competition, PC&G “may have to match the noteholders’ offer to the TCC,” which may lower equity value to $6-$12.50 per share if the utility has “to raise equity to cover higher liabilities at either the backstop or rights offering valuations in the current backstop agreement.” 
Every $1bn reduction in presumed equity financing adds about $3.50 per share to equity value.
“In the worst case, the competing plan could win and completely wipe out current shareholders. In other words, zero is possible.” 
Price target cut to $10 from $18.50, Morgan Stanley, Stephen Byrd: Creditor’s plan “leaves very little equity value,” Morgan Stanley said. “We see heightened uncertainty in the process as a result.”
“If this bondholder plan is confirmed, it could imply almost $0 value for PCG stock. 
We note though that there is significant uncertainty as to how the two plans will move through the bankruptcy process.” “PCG’s ability to negotiate with the victims groups and build support for its own plan will be a key driver in retaining equity value going forward.”
Remains equalweight, price target cut to $16 from $23 on October 9 before the judge’s ruling.
Data PG&E had one buy, 12 holds and no sells before Thursday. The average analyst price target was $15, implying shares could advance by 40% over the next year.
Bearish bets represent 8.5% of free float with a notional short interest valued at $487.7mn, according to data from S3 Partners.