New Jersey Resources (NJR) 23Q4 Update

23Q4 GAAP EPS was $0.38 and net financial earnings per share (NFEPS), a non-GAAP measure, was $0.30 per basic share.  That compares with 22Q4 GAAP EPS of $0.56 and NFEPS of $0.50.  I had anticipated GAAP EPS of $0.30 and NFEPS of $0.31.  The consensus estimate was $0.35.

New Jersey Natural Gas’s NFE was down vs. 22Q4 due to lower utility gross margin and higher SG&A and D&A expense, partially offset by lower O&M expense.  Clean Energy Ventures’ (CEV’s) NFE decreased 13.3% to $50.2 million, due to lower REC sales and a 40% drop in solar electricity and other sales mostly on lower pricing.  Energy Services (ES) recorded a modest NFE loss of $3.4 million, about the same as last year.  Storage & Transportation’s (S&T’s) net income fell 83% to $1.8 million, as revenues decreased 11.3%, O&M costs rose 43% and equity in the earnings of its Steckman Ridge affiliate declined 62%.

For the fiscal year, NJR reported GAAP diluted EPS of $2.71, down from $2.85 in the prior year and NFEPS of $2.70 up from $2.50.  I had anticipated GAAP EPS of $2.63 and NFEPS of $2.70.  For fiscal 2024, management has established an NFEPS guidance range of $2.70-$2.85.  At the midpoint, that would be an increase of 2.8% (ranging from 0%-5.6%).

NJR’s 2024 guidance anticipates a significant benefit in 24Q4 in its Energy Services business from the permanent release of pipeline capacity to its customer under an asset management agreement.  Following management’s guidance on the percentage distribution of NFE by segment, my projections assume a big improvement in Energy Services and Storage & Transportation NFE, partially offset by declines at NJNG and CEV.  Overall, I project fiscal 2024 GAAP earnings of $2.87 and NFEPS of $2.79.

The profit from that pipeline capacity release will not be repeated in fiscal 2025.  My projections therefore assume that the headwinds currently facing CEV and S&T will subside and NJNG will benefit from its upcoming base rate filing, more than offsetting the expected decline in ES NFE.  Thus, my fiscal 2025 projections anticipate GAAP EPS of $3.03 and NFEPS of $2.95, up 5.6% and 5.7%, respectively.

Since my last report (8/23), NJR’s stock has risen 4.3%, underperforming the S&P Mid-Cap 400’s 7.1% gain, but outperforming Dow Jones U.S. Gas Utility Index’s 0.5% decline.  Based upon the projected improvement in fiscal 2025 earnings, I am raising my price target on NJR’s stock from $48 to $50.  The new $50 price target represents a valuation multiple of 17.0 times projected fiscal 2024 NFEPS of $2.95.  That is above NJR’s current one-year forward multiple of 16.1 and also above the current peer group average of about 15 times.  The $50 price target represents a potential total return of 16.2% from NJR’s current share price of $44.47, including its current 3.8% dividend yield.  Accordingly, I am maintaining my performance rating of “2’” (Outperform).

This is a summary of my recent update 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.

December 20, 2023 (Report published on the same date.)

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

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