What happened

Shares of PG&E (NYSE:PCG) were up 10% on Tuesday afternoon, continuing the stock's surge in the days since the bankrupt utility announced a settlement with victims of California's wildfires. Shareholders are growing more confident that they will receive some recovery as part of the company's reorganization. If so, how much higher could PG&E shares climb?

So what

PG&E entered bankruptcy nearly a year ago to manage an estimated $30 billion in liabilities stemming from 2017 and 2018 wildfires. Equity holders typically are wiped out in a reorganization, and shares typically drop below $1 apiece, but PG&E shares have been an exception to the rule because the company has said it intends to preserve some value for shareholders in its plan.

Utility transmission lines going across a rural landscape.

Image source: Getty Images.

That assumption came under fire after the court allowed creditors to file competing plans. But PG&E's settlement deal, announced last Friday, seems likely to secure the company the support of wildfire victims, and it means a plan put forth by debt holders that would have wiped out equity investors is less likely to be approved.

PG&E said it has received more than $12 billion in equity backstop commitments to support the settlement and its reorganization.

Now what

PG&E shares are up more than 40% over the past five days but down by nearly 50% year to date. The odds of PG&E shareholders getting some recovery out of the reorganization have gone up, but the amount they will receive is still a matter of debate.

PG&E's restructuring plan, according to media reports, calls for the reorganized company to be worth between $30 billion and $35 billion upon emergence, with at least $20 billion of that equity value to go to fire victims and new money coming in. That leaves between $10 billion and $15 billion potentially available for existing holders, meaning the shares could be valued as high as $18 to $28 apiece, well above the current $12-per-share price.

Of course, the plan still must be approved by the court and backed by regulators, and it is unclear whether that $30 billion valuation will hold or if other parties will get a share of the equity. PG&E is hopeful of emerging from bankruptcy by June 30, 2020, but that is a long six months away, and a lot could change in the months to come.

PCG Chart

PCG share price since Nov. 1, 2018, data by YCharts.

Shares of PG&E traded above $45 apiece as recently as November 2018, meaning that long-term holders are likely to take a hit even in the best of circumstances. And given all the complications surrounding the reorganization, I wouldn't conclude with any certainty that the equity will go much higher than the current price.

Leave PG&E shares to the speculators and short-term traders.