PG&E's Next Earnings: Is the Turnaround Already Priced In?

The market is caught between two narratives. On one side, there is a clear expectation for operational improvement. Analysts forecast adjusted EPS of $0.38 for Q4 2025, representing a 22.6% year-over-year increase. For the full fiscal year, the consensus sees adjusted EPS of $1.50, up 10.3% from the prior year. This steady earnings growth is the foundation of a turnaround thesis, supported by a bullish analyst consensus with a "Strong Buy" rating and an average price target implying significant upside.

Yet the stock's performance tells a different story. Despite these positive forecasts, PCG stock has declined 6.6% over the past 52 weeks, lagging far behind both the S&P 500's 17.1% gain and the utilities sector ETF's 12.3% increase. This underperformance suggests the market is skeptical. It is not doubting the near-term earnings beat, but rather questioning the durability of the growth and the resolution of deep-seated liabilities. The stock fell even after a better-than-expected quarterly report last quarter, pressured by ongoing wildfire-related costs. The prevailing sentiment appears to be one of cautious waiting: the turnaround is priced for perfection, but investors are holding back until they see concrete proof that the company's financial and legal overhangs are truly receding.

Assessing the Financial Reality: Growth vs. Liabilities

The reported earnings growth tells only part of the story. On the surface, the numbers show improvement. For the first nine months of 2025, non-GAAP core EPS was $1.14, up from $1.06 in the same period of 2024. This core metric, which excludes one-time and non-operational items, reflects the company's progress in operational efficiency and capital investment returns. Management has guided for further expansion, narrowing its 2025 non-GAAP core EPS target and initiating a 2026 range that implies continued growth.

Yet the GAAP picture reveals a persistent financial burden. The company's official earnings were impacted by increased wildfire-related claims, net of recoveries. This is not a one-off charge but a recurring drag that distorts the true profitability of the ongoing business. It highlights the gap between the operational turnaround PG&E is executing and the legacy liabilities that continue to pressure the bottom line. The market is rightly focused on this dichotomy: can core earnings growth outpace these ongoing costs?

The financial overhang extends beyond operational claims. In January 2026, PG&E filed a $100 million shareholder settlement related to allegations of misleading investors about wildfire safety before the 2017 and 2018 fires. While the company denies wrongdoing, the settlement adds another layer of legal and financial obligation. This is the kind of legacy cost that can resurface unpredictably, creating a cloud over earnings stability.

The bottom line is one of quality. The reported growth is real but fragile, built on a foundation that is still being undermined by unresolved liabilities. For the turnaround thesis to hold, the market needs to see a clear inflection where core earnings growth decisively outpaces these legacy costs. Right now, the financial reality is a tug-of-war between progress and pressure.

The Regulatory and Operational Overhang

The turnaround thesis faces a formidable test from structural constraints that go beyond quarterly earnings. PG&E operates under a permanent, heightened level of regulatory scrutiny designed to ensure it never again faces the catastrophic failures that led to bankruptcy. The Enhanced Oversight and Enforcement (EOE) Process with the California Public Utilities Commission is a live wire. It has six steps triggered by specific findings or threshold events, allowing the CPUC to closely monitor PG&E's performance on safety and operational metrics. The process was activated in 2021 after the company failed to prioritize clearing vegetation on its highest-risk lines. While PG&E was removed from the first step after corrective actions, the mere existence of this framework means the company is perpetually under a microscope. Any failure to meet its safety and operational targets could trigger enforcement actions, creating a persistent risk to its operations and financial stability.

Compounding this is the legacy of the Fire Victim Trust. As the trust winds down its role, it continues to prosecute claims against third parties, a process that could indirectly affect PG&E's financial position. The trust is a limited fund with no ability to collect more from PG&E beyond what was transferred under the bankruptcy plan. However, its ongoing work to resolve claims and pursue rights of action assigned by PG&E means the company's legal and financial overhang is not fully extinguished. This creates a lingering uncertainty that can weigh on investor sentiment and complicate long-term planning.

Management's bold reaffirmation of its financial targets adds another layer of pressure. The company has initiated 2026 non-GAAP core EPS guidance and, more importantly, reaffirmed at least 9% annual non-GAAP core EPS growth guidance for 2027-2030. This is a high bar, especially given the persistent liabilities and regulatory constraints. The market is being asked to believe that operational efficiency gains can consistently outpace these structural headwinds for the next five years. This guidance, while a sign of internal confidence, also sets a very precise expectation that leaves little room for error. If the company stumbles on its safety metrics or faces an unexpected claim, meeting this growth trajectory becomes significantly harder.

The bottom line is that the turnaround is not just about improving earnings; it is about navigating a complex web of regulatory oversight and legacy liabilities. The market has priced in the near-term earnings beat, but the real test is whether PG&E can sustain its growth path while operating under these permanent constraints. The high growth guidance suggests management sees a clear path, but the structural overhang means the risk/reward ratio is not as one-sided as the bullish analyst consensus implies.

Catalysts and Risks: What to Watch

The upcoming earnings call on February 12 is the primary catalyst for the next leg of the stock's move. Management will have the chance to confirm the trajectory of its core earnings growth and, more importantly, provide a clearer view on the timeline for resolving its legacy liabilities. The market has priced in a near-term beat, but the real test is whether the company can deliver on its ambitious long-term guidance while navigating its structural overhangs.

Key risks to watch are the resolution of the $100 million shareholder settlement and updates on the Fire Victim Trust's final payments. The settlement, filed in January, is a $100 million shareholder settlement related to allegations of misleading investors about wildfire safety. While the company denies wrongdoing, its finalization will remove a legal cloud, but the cost itself is a tangible financial hit. Simultaneously, the Fire Victim Trust is winding down its role, and any final payments or updates on its prosecution of assigned rights of action will be a critical indicator of the remaining financial and legal overhang. The trust is a limited fund with no ability to collect more from PG&E, but its activity signals whether the bankruptcy-era liabilities are truly being extinguished.

On the regulatory front, progress against CPUC safety metrics will be a silent but crucial risk factor. The Enhanced Oversight and Enforcement (EOE) Process remains active, and any failure to meet its safety thresholds could trigger enforcement actions. Management's bold reaffirmation of at least 9% annual core EPS growth for 2027-2030 sets a very high bar. The February call will be the first chance to see if this guidance is being supported by tangible operational improvements that can withstand the persistent regulatory and legal scrutiny.

Finally, the stock's performance relative to the utilities sector will be a key sentiment indicator. PCG has declined 6.6% over the past 52 weeks, lagging the S&P 500 and the utilities ETF. This underperformance suggests the market remains cautious, waiting for concrete proof that the turnaround is durable. If the February results and guidance fail to decisively narrow the expectations gap between operational progress and legacy liabilities, the stock may struggle to break out of its current range. The catalyst is the call, but the risk is that the news is already priced for perfection.