23Q3 GAAP EPS was $0.02 and net financial earnings per share (NFEPS), a non-GAAP measure, was $0.10 per basic share. That compares with 22Q3 GAAP EPS of $0.14 and NFEPS of –$0.04. I had anticipated a GAAP loss of $0.07 and NFEPS of –$0.07. The consensus estimate was –$0.05. This was another solid quarter, according to management.
NJNG’s NFE was down vs. 22Q3, but in this seasonally slow quarter, the decline was not material. Clean Energy Ventures’ NFE swung from a loss of $5.1 million to earnings of $7.3 million, due entirely to a $16.7 million reversal of a deferred tax valuation allowance. That was a surprise to me, but management had included it in its full year guidance. Energy services reported an NFE loss of $1.6 million, better than last year’s $5.0 million loss, mostly as a result of lower O&M expense. Storage & Transportation’s net income fell 63% to $2.4 million, due a sharp drop in the earnings of its Steckman Ridge affiliate.
Despite the better-than-expected performance, NJR only reaffirmed its full year NFE guidance of $2.62-$2.72 per share. Since $2.40 of that is already in hand, the reaffirmation implies 23Q4 NFEPS of $0.22-$0.32 compared with $0.50 in 22Q4. Even so, the full year NFEPS 2023 guidance exceeds 2022’s $2.50.
NJR’s 23Q3 performance highlights a concern about the low price of natural gas that may affect its fiscal 2024 performance. NJNG, which accounts for half of the company’s earnings, is mostly protected against fluctuations in natural gas prices through regulatory mechanisms. However, the value of natural gas storage and transportation declines in an oversupplied market. It is also more difficult to make money trading the commodity. Furthermore, since the price of natural gas is a key driver of electricity prices, the value of electricity generated by solar assets is also lower. According to my estimates, the average price that NJR’s CEV business received in 23Q3 from its SREC and TREC sales was significantly lower.
Thus, my projections perhaps optimistically anticipate that NJR’s 2024 NFEPS will be flat at $2.70. That still represents average annualized NFEPS growth of 9.5% from the 2022 base of $2.25, so my projection is slightly above the high end of the company’s long-term annual growth target.
Since my last report (6/5), NJR’s stock has fallen 15.6%, underperforming the Dow Jones U.S. Gas Utility Index’s 3.6% drop and the S&P MidCap 400’s 3.7% gain. The stock is now down 23.6% since its intraday peak of $55.84 on April 12. This has been a steady, grinding but orderly decline. Even so, the stock is not quite oversold from a technical point of view and it is still searching for support.
With the stock’s decline, I am reducing my price target from $52 to $48. The revised target equals 17.8 times projected 2024 NFEPS of $2.70. The potential total return is 16%, including the 3.7% dividend yield. Thus, I am raising my performance rating a notch to “2” (Outperform). The price of natural gas has begun to recover and futures markets anticipate more in 2024. Yet, NJR and other gas utility stocks remain on the decline. NJR’s valuation is now more attractive, so it will hopefully soon find a bottom.
This is a summary of my recent update report on New Jersey Resources Corp. (NJR), which was published on August 24, 2023. To obtain a copy of the full report, please reach out to me using the contact information provided below.
August 24, 2023
Stephen P. Percoco
16 W. Elizabeth Avenue, Suite 4
Linden, New Jersey 07036
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