Monday's First Move: PCG Downgrades, GME Prelim Earnings, DE Upgrade

**SPEAKER_1** (0:00)
All right, first moves. Diane King Hall is with us, and she explains everything easily so we can understand it all. So we'll take a look here at the S&P 500 and some of the movers. We think about PG&E. Good morning, Diane.

**Diane King Hall** (0:13)
Good morning. Yeah, PG&E shares down 19%.
This is an individual story unique to PG&E, and this is tied to some legislation in California with regard to wildfire liability and protections there. Now, there are certainly protections for victims there, but the legislation leaves out potential protection for PG&E in terms of the wildfire fund. It doesn't include a permanent mechanism to replenish California's $21 billion wildfire fund.
It also leaves the connection between the fund's solvency and utility liability limits largely intact. So you have a lot of downgrades happening as a result of this. Wells Fargo is downgrading it to equal weight from overweight. They've lowered their price target to $24. That's down from $25. BMO is downgrading it to market perform. They've slashed their target down to $21 from $28. They argue the bill does nothing to ensure the wildfire firm's, wildfire fund, excuse me, long-term solvency. Mizuho, they've moved to neutral on PG&E. They have cut their price target to $16. That's down from $21. They say the legislation fails to deliver either a replenishment mechanism or permanent, adequately funded backstop. And so the concern here, this goes back several years pre-pandemic to 2019 with regard to PG&E. You'll recall they filed for Chapter 11 bankruptcy protection back in 2019 That was because of wildfire-related liabilities. They emerged in July of 2020 So there's the concern and uncertainty around liability protections. And what happens, we know wildfires happen in California. What happens if they're in a position like they were in in 2019? So investors right now selling first, asking questions later.

**SPEAKER_1** (2:04)
Yeah, and it's taking EIX, Edison International, also in the same realm of distribution of electric power, down along with it. That's also down 20% today. Let's take a look at GameStop. Everybody remembers GameStop. And now we're waiting on some results.

**Diane King Hall** (2:18)
Yeah, listen, GameStop, when I checked in the pre-market, shares were higher. They're still, they're higher right now in early trading, better by more than 5% at the moment. This comes after the video game retailer issued preliminary second quarter results. They expect net income of $290 to $310 million. That's up from $169 million from a year ago.
This profit boost is pretty much investment driven here. There's a $238 million game tied to its eBay position here.
Now, to be fair, this was partially offset by a $75 million loss on its digital assets, among other factors. Sales though are expected to decline as much as 20%. Part of that reflects store closures, the sale of its French operations, and the Nintendo Switch 2 comps. There is some tougher comps when it comes to that. GameStop has also amended the exchange of about $1.4 billion in convertible notes. The remaining consideration now settled in cash rather than stock. So, the investor reaction today is sending shares higher, but to be fair, this stock has been under pressure year to day, down more than 10% coming into today, and on a year-over-year basis even worse. So, right now, investors are, you know, just picking up, scooping up some beaten up shares. Nicole.

**SPEAKER_1** (3:39)
They're trying to give us a glimpse into what's going to happen going forward. I mean, this chart over the long term, it, you know, gives some palpitations because obviously it's been part of the meme stocks. It hasn't done much over three years. So, you know, this is not for the faint of heart.

**Diane King Hall** (3:56)
No.

**SPEAKER_1** (3:56)
This name. I'm just, I just want to remind myself, okay, one year down 18%.
What about Deere? That's a good one. Deere off to the races once again. I mean, a good one in that. I'm sorry. You know, when I say good one, I need to correct myself. It's up 2.5%. It's had a very nice year. It's up 31%.

**Diane King Hall** (4:10)
You're talking about Deere, right? Yes, Deere. Listen, this has been, I mean, it's Outperformer compared to the S&P 500
And this one is one of those companies that's honestly turning into an AI story, similar to Caterpillar. The run is not as big as Caterpillar, but still, again, Outperformer. Today, it's gaining some ground. This is after Baird upgraded it to Outperform from neutral. They've raised their price target to 800 That's up from 640 That implies more than 25% upside from Friday's closing levels. Again, gaining ground right now. Baird says it has the cleanest setup, that's a quote in the sector, because of its heavy exposures to North American row crop farming.