Edison International and PG&E Corp. may be on an upward trajectory, with both California utilities overcoming operating issues this year, Citigroup Investment Research said Thursday.
Analyst Brian Chin upgraded Edison and PG&E to "Buy" from "Hold." He lifted his stock price target for Edison to $45 from $40 per share and for PG&E to $48 from $46 per share.
Chin upgraded Edison after considering that it may shed its unprofitable merchant generation business. The business lost 9 cents per share in the second quarter on more maintenance expenses and lower energy prices.
Chin said Wall Street has overpenalized PG&E following a gas pipeline explosion last year in San Bruno, Calif. that killed eight people and damaged a San Francisco neighborhood. Federal investigators blamed the utility for significant safety lapses and regulators for weak oversight.
New commissioners have since been appointed to the state regulatory board. This scared investors away from PG&E, but Chin said it doesn't appear that the board's punishment will be as severe as once thought. The new commissioners have signaled a preference to set a specific dollar amount to the penalty instead of changing utility rates that would hurt the company for years to come.
Investors who have been scared away by California's regulatory changes probably will take "a more constructive view" in time, and that will also benefit shares for all of the state's utilities.
Edison International shares added 20 cents to $36.47 and PG&E added 36 cents to $41.75 in premarket trading.