Applied Investments Program 1 ______________________________________________________________________________

PG&E Corp

Ticker: PCG Yield: 4.06%Current Price: $45.19 P/B: 1.3152 Week High: $48.64 Market Cap (bil): $21.152 Week Low: $39.42 Shares (bil): 4.71Best Target: $47.00 Sector: Utilities

EPS T12 $2.53 P/E T12: 28.24EPS Current Year: $3.04 P/E Current Year: 21.94EPS Next Year: $3.18 P/E Next Year: 14.84

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Pacific Gas & Electric Company(PCG)

Portfolio Weight:Currently 2.80%

Overview:PG&E is an energy based business with a focus in electricity generation and natural gas distribution.

Recommendation:TrimPrice Target: $51.00

Business OutlinePG&E Corporation is a holding company that holds interests in energy based businesses. The Company’s holdings include a public utility operating in northern and central California that provides electricity and natural gas distribution; electricity generation, procurement, and transmission; and natural gas procurement, transportation, and storage. PG&E serves 5.1 million electricity customers and 4.3 million gas customers

PG&E Corporation (PCG) is a Large-Cap Utilities – Regulated Electric Company with approximately $16 billion in annual revenues. PG&E focuses efforts in Electricity generation (87.5%), Natural Gas Distribution (8.7%), Backbone and Local Transmission Pipelines (1.2%), as well as other small segments.

Based on my research I recommend trimming our holding of PCG down to 1.5% and holding the remainder until reaching $51/share. Additionally I recommend we use the excess funds to pick up an additional company in the Utilities sector to maintain our current utilities weighting. A potential candidate to maintain our Utilities weight may be, DTE Energy Company with a 12 month total return of 19.67% or another similar company within the utilities sector. This course of action would require further research into a comparable company.

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Applied Investments Program 2 ______________________________________________________________________________

Moat:Narrow

Analyst opinion:Based on recent legal uncertainty as well as other headwinds outlook appears slightly bearish.

Earnings consensus:Average.

Valuation:The stock has an 11% upside potential based on our adjusted sell target.Risks:We do face some uncertainty concerning future and current legal matters.

Company NewsPacific Gas & Electric Company currently faces a $1.4 billion penalty, the largest fine ever levied by the state’s agency, over a fatal pipeline explosion in California. These legal headwinds have exposed PG&E’s underground network of aging gas lines which poses a risk of future uncertainty regarding underground gas lines. Additionally, PG&E has been performing an ongoing investigation of their natural gas infrastructure to determine risk of another explosion, this investigation is said to cost $769 million.

Analyst’s TakeBears say that shareholders could bear more than $3 Billion of after-tax costs related to a recent San Bruno pipeline explosion. Bulls say that regulators have supported the company’s investments in smart meters and renewable energy research and development. PG&E has a current consensus rating of 3.61 with 9 buys 12 holds and 2 sells.

EarningsPacific Gas & Electric company beat earnings estimates 5 out of 8 of the most recent quarters, but the two recent earnings reports have been lower than analyst estimates by 14.83% and 8.00% respectively. PG&E earned $3.1 billion in 2013 from natural gas distribution, making up 20% of its total $15.5 billion revenue.

Financial Statements and ValuationMorningstar gives a fair value estimate of $47.00, with a sell target at $63.45. Additionally, PCG has seen 16% increase in total revenue over the past five years and are on track to continue that growth in 2014.

Investment RisksThe biggest investment risks associated with Pacific Gas & Electric company are the large legal fines due to the San Bruno pipeline explosion as well as the risk of future explosions due too and aging underground network of gas pipelines.

Conclusion and RecommendationBased on my research I recommend we trim our current holdings of Pacific Gas & Electric Company to reduce the risk associated with their current legal battles and pipeline violations, as well as the aging underground pipeline. PG&E has put forth into action a plan to begin pressure testing their pipeline network to verify legal compliance of existing lines set to cost $769 million finishing in 2014, but there still appears to be some degree of uncertainty concerning the future of PG&E. Furthermore, I suggest we pick up another company from the Utilities Sector to maintain a similar weight, potentially DTE Energy Company. Although PG&E is facing a headwind I believe they have the ability to work things out in the long run, but I don’t think putting all our Utility eggs in one basket is a risk worth taking at this time.

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Applied Investments Program 3 ______________________________________________________________________________

Tables and Exhibits

o An exhibit showing Pacific Gas & Electric’s pipeline serving 4.3 million gas customers.

o A price chart of PG&E YTD gains in share price.

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