Investing.com -- Jefferies downgraded PG&E Corporation to Hold from Buy, citing weakening prospects for meaningful wildfire liability reform and a stock price that already reflects optimistic expectations.

The brokerage said recent discussions with stakeholders suggest limited political support for structural changes that would shift wildfire liability away from utilities. A key hurdle remains a lack of alignment between utilities and insurers, with the insurance sector resisting changes to existing risk-sharing arrangements.

Investor focus has centered on recommendations due under California’s SB 254 Phase II framework, expected April 1. Jefferies said the report is unlikely to provide a clear or actionable path forward, instead outlining policy options for lawmakers. It also flagged uncertainty over whether Governor Gavin Newsom would push a contentious reform late in his term.

Shares of PG&E have risen more than 20% since January lows, driven by expectations of a supportive policy outcome. Jefferies said the stock has become a crowded position, with investors increasingly pricing in reform that may not materialize.

The firm added that while incremental measures, such as liability caps, remain possible, a broader overhaul of wildfire liability rules appears unlikely. Without such changes, it sees limited scope for further re-rating.

Jefferies also pointed to elevated wildfire risk heading into the 2026 fire season, with below-average snowpack levels in California increasing the potential for fire activity. However, it said higher risk may not translate into legislative urgency.

Given the reduced likelihood of reform and the stock’s recent gains, Jefferies sees the balance of risks shifting toward disappointment rather than further upside.