New Jersey Resources (NJR) 23Q1 Update

NJR reported 23Q1 GAAP net income of $1.19 per diluted share and net financial earnings (NFE), a non-GAAP measure, of $1.14 per basic share.  That compares with 22Q1 GAAP net income of $1.16 per share and NFE per basic share (NFEPS) of $0.68.  I had anticipated GAAP EPS of $0.88 and NFEPS of $0.89.  The consensus NFEPS estimate was $0.72.

This was a strong quarter all around for NJR’s major businesses.  All reported meaningfully higher NFE (or in the case of Clean Energy Ventures (CEV), a lower loss).  New Jersey Natural Gas’s NFE rose 7% to $54.7 million, as a 16% increase in utility gross margin was partially offset by a doubling of operation and maintenance costs.  Energy Services NFE nearly tripled from $17.6 million to $52.5 million, mostly due to higher natural gas price volatility.  Storage & Transportation’s NFE more than doubled, due to the opening of the final leg of the Adelphia Gateway pipeline and a strong contribution from its Leaf River natural gas storage facility.  CEV’s net financial loss decreased from $6.8 million to $3.6 billion, as it placed into service 18.6 MW of solar projects (vs. 1.6 MW last year), including one of the largest landfill solar arrays and the largest floating solar project in the U.S.

Based upon the stronger-than-anticipated results, NJR raised its fiscal 2023 NFEPS guidance by $0.20 to $2.62-$2.72.  For fiscal 2024, it still anticipates NFEPS growth at the high end of its long-term 7%-9% target.  Since this is based upon a fiscal 2022 base of $2.25, however, the implied NFEPS target for fiscal 2024 is ~$2.69, within the current NFE guidance range of $2.62-$2.72 for fiscal 2023.  Based upon this updated guidance, I have raised my estimates for fiscal 2023 NFEPS to $2.69 (from $2.43) and for fiscal 2024 to $2.75 (from $2.64).

Besides the stronger-than-anticipated 23Q1 results, NJR’s share price performance has also exceeded my expectations, rising from about $48 in mid-November, but then surging on the heels of the earnings announcement to an intra-day high of nearly $54 on April 12.  Since then, it has given back some of those gains and closed today at $52.64.  Its price return of 7.2% since my last report far outpaced the S&P MidCap 400’s 2.1% decline.

With the share price declines in recent weeks, NJR has underperformed both the MidCap 400 and peers.  Yet, it still trades at a modest premium to peer group average forward multiples.  The recent decline in the price of natural gas will likely create headwinds for the Energy Services business.  Although its businesses appear to have good prospects going forward, my analysis suggests that it will be difficult for NJR to replicate fiscal 2023’s strong financial performance in 2024.  Accordingly, I am maintaining my price target of $51 and also my performance rating of “3” (Neutral).

This is a summary of my recent report on New Jersey Resources (NJR). To obtain a copy of the full report, please reach out to me using the contact information provided below.

April 26, 2023

Stephen P. Percoco
Lark Research
839 Dewitt Street
Linden, New Jersey 07036
(908) 975-0250

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