Pacific Gas & Electric Co.PCGNYSE

Overview Intelligence Charts News Fundamentals Key Metrics TTM Financials Earnings Growth Rating Analysts Institutional Peers Historical

DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $72.53 per share(market-calibrated)

+279.5%

Upside to Fair Value

Current

$19.11

Pure Model

$79.32

Fair Value

$72.53

Bull Case

$96.96

Bear Case

$71.59

Market Reality Check

Model Terminal Growth

2.00%

Market-Implied Growth

0.50%

Calibrated Growth

1.48%

Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $79.32.

What's Driving This Ratingfor PCG

↓

CapEx normalizing toward maintenance

Historical CapEx is 39.42% of revenue (heavy investment phase). Model fades this to 5.00% by Year 10, freeing up ~$11.9B in annual FCF. This is the biggest driver of long-term cash flow improvement.

✓

Premium margins already priced in

EBIT margin of 31.66% is already well above sector average. The model holds this level — there's limited room for margin expansion to drive upside. Valuation depends primarily on revenue growth.

→

Moderate revenue growth

Analyst consensus projects 7.19% revenue growth, fading to 2.00% by Year 10. Revenue reaches $34.5B (vs $24.9B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $93.32/share (29.1x terminal FCF) while exit multiple gives $65.31/share (21.0x terminal FCF). The base case averages both methods.

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 150bps below the model's 2.00%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 76.07% indicates efficient cash generation. FCF reaches $13.0B by Year 10 (37.58% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.37

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)6.18%

Cost of Debt

Pre-tax Cost of Debt4.06%

Tax Rate21.00%

After-tax Cost of Debt3.21%

Equity Weight (E/V)40.64%

Debt Weight (D/V)59.36%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (40.64% × 6.18%) + (59.36% × 3.21%)

= 5.50%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$26.7B	$28.3B	$30.3B	$32.2B	$34.5B
EBIT	$8.5B	$8.9B	$9.6B	$10.2B	$10.9B
Tax	$1.8B	$1.9B	$2.0B	$2.1B	$2.3B
NOPAT	$6.7B	$7.1B	$7.6B	$8.1B	$8.6B
+ Depreciation	$4.7B	$5.0B	$5.4B	$5.7B	$6.1B
- Capex	$10.5B	$9.0B	$7.3B	$5.3B	$1.7B
- Δ NWC	$156M	$61M	$91M	$80M	$59M
Free Cash Flow	$736M	$3.0B	$5.6B	$8.4B	$13.0B
Discount Factor	0.948	0.852	0.765	0.687	0.585
Present Value	$697M	$2.6B	$4.2B	$5.8B	$7.6B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$13.0B

Terminal Growth Rate2.00%

WACC5.50%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$377.7B

PV of Terminal Value$221.1B

Exit Multiple Method

Year 10 EBITDA$17.0B

Exit Multiple (EV/EBITDA)16.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$272.6B

PV of Terminal Value$159.6B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$44.5B

PV of Terminal Value$221.1B

Enterprise Value$265.7B

(-) Net Debt$60.6B

Equity Value$205.0B

Shares Outstanding2.2B

Price per Share$93.32

Exit Multiple Method

PV of Projected FCFs$44.5B

PV of Terminal Value$159.6B

Enterprise Value$204.1B

(-) Net Debt$60.6B

Equity Value$143.5B

Shares Outstanding2.2B

Price per Share$65.31

Pure Model Fair Value

$79.32

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.00%	1.50%	2.00%	2.50%	3.00%
3.50%	$124.03	$145.67	$138.34	$131.35	$124.70
4.50%	$88.82	$98.27	$111.50	$131.35	$124.70
5.50%	$67.75	$72.81	$79.32	$87.99	$100.14
6.50%	$53.30	$56.35	$60.07	$64.71	$70.69
7.50%	$42.56	$44.53	$46.87	$49.66	$53.08

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$71.59

274.6% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 0.47

Base Case

$79.32

315.1% vs current

• Analyst consensus
• Terminal growth: 2.0%
• Beta: 0.37

Bull Case

$96.96

407.4% vs current

• +25% vs analyst consensus
• Terminal growth: 2.5%
• Beta: 0.32

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Utilities Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth7.19%

Year 3 Revenue Growth2.53%

Year 5 Revenue Growth3.59%

Year 7 Revenue Growth2.96%

Year 10 Revenue Growth2.00%

Terminal Growth Rate2.00%

Margin & Efficiency

Current EBIT Margin31.66%

Tax Rate21.00%

Historical Capex / Rev39.42%

Terminal Capex / Rev5.00%

NWC / Revenue8.68%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 16x EV/EBITDA (Utilities sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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