Investing.com -- Morgan Stanley warned of significant financial risk for California utilities, citing concerns that the state's wildfire fund may no longer be sufficient to protect companies from catastrophic liabilities.
The brokerage estimated that damages from the recent Eaton (NYSE:ETN) Fire could reach $13.5 billion, depleting much of the $21 billion wildfire fund. Without a mechanism to replenish it, future large-scale fires could expose utility shareholders to open-ended liabilities.
“Significant valuation discounts will persist until there is clarity on the wildfire fund, alongside lingering tail risk of another catastrophic fire,” analyst at Morgan Stanley (NYSE:MS) said.
Morgan Stanley downgraded PG&E Corp (NYSE:PCG) to "Underweight" and maintained an "Underweight" rating on Edison International (NYSE:EIX), cutting their price targets to $16.50 and $48, respectively. The firm cautioned that unless California acts to restore the wildfire fund, utility stocks will continue to face steep valuation discounts.
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