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Why PG&E Stock Popped 16.5% Today

By Rich Smith – Updated Apr 24, 2019 at 12:09AM

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Crazy things can happen in a bankruptcy.

What happened

PG&E (PCG 0.91%), the nation's largest electric utility, filed for Chapter 11 bankruptcy protection today. Its stock rose 16.5%.

So what

Yes, you read that right, and, yes, I realize that doesn't seem to make much sense (unless, of course, what we're seeing here is simply short-sellers "closing" their shorts by buying back shares previously shorted, in which case it would make a lot of sense).

Yet some analysts were saying today that despite PG&E's being now officially "bankrupt," they don't believe shareholders will be entirely wiped out -- i.e., PG&E stock might not go to zero. For example, Morningstar  says it believes there will still be $12.50 worth of "fair value" left in PG&E stock, even after it pays off all its creditors and settles all its claims for wildfire damages -- and, indeed, that the stock could be worth as much as $20 per share.

Electric towers and lines

PC&G's stock may or may not be worth anything after bankruptcy, but its infrastructure will remain. Image source: Getty Images.

Now what

Despite this contrarian argument for buying PG&E, the utility stated that it has assets worth $71.39 billion and liabilities of $51.69 billion -- and could still be liable for close to $30 billion in fire-related damages. That seems to imply that the stock going to zero remains a distinct possibility.

Unless you have a good mathematical argument for believing it won't -- "hope" doesn't count -- it's probably best to ignore today's rebound and avoid this stock.

Check out the latest PG&E earnings call transcript.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

PG&E Stock Quote
$15.57 (0.91%) $0.14

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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