Shares of PG & E Corp. (PCG) have been punished in the wake of gas pipe explosion and fire in San Francisco.
We recommended buying PCG shares. Per the prior post, we sold Sep 45 puts at $1.60. if the stock continues to decline, the option will be exercised and our entry will be at $43.40. With one week left to expiration, if the stock bounces over $45, we will pocket the entire premium. We will add to the position on spikes down.
As we apply the six screens of ZYX Change Method, our analysis shows damage of less than $200 million. Barring gross negligence, PCG should be able to make a full recovery from insurance and adding the deductible to rate base. PCG is a well managed utility and the probability of gross negligence is very low.
There is not much regulatory risk as the Gas Storage and Transmission rate case has already been settled.
