24Q2 GAAP diluted EPS was $1.22 and net financial earnings per basic share (NFEPS), a non-GAAP measure, was $1.40. That compares with 23Q2 GAAP EPS of $1.13 and NFEPS of $1.15. The results exceed my expectations. The consensus NFEPS estimate was $1.22.
New Jersey Natural Gas’s NFE improved due to higher utility gross margin, lower O&M expense and higher other income, offset partially by higher SG&A and D&A expense. Clean Energy Ventures’ (CEV’s) NFE was less negative, due to the recognition of ITCs on solar sale leaseback transactions, which more than offset lower profits from SREC sales. Excluding hedging and derivative losses, Energy Services (ES) NFE improved sharply, but its operating income fell 6.2% on lower revenues and higher O&M expense. Storage & Transportation’s (S&T’s) NFE declined by $0.5 million to $2.0 million, as higher revenues were more than offset by higher O&M expenses. Home Services and Other’s NFE also decreased.
In February, management raised its 2024 NFEPS guidance by $0.15 to $2.85-$3.00, as Energy Services was able to capitalize on volatility in the natural gas market in 24Q1. I have adjusted my projections accordingly. My projections also anticipate a significant benefit in 24Q4 in Energy Services from the permanent release of pipeline capacity to its customer under an asset management agreement. Overall, I project fiscal 2024 GAAP EPS of $3.02 and non-GAAP NFEPS of $3.00, at the high end of guidance.
Fiscal 2025 may very well be consequential for NJR and its stock. In January, NJNG filed a request with the NJBPU for an increase in base rates of $223 million (equivalent to $159 million in operating income. That represents a potential 80% increase in NJNG’s profitability. The case is expected to be settled by year-end. Offsetting that increase will be lower income at Energy Services from the permanent pipeline capacity release and probably lower earnings from commodity trading. My fiscal 2025 projections assume a 32% increase in NJNG’s operating income (which implies a settlement of approximately 40% of the requested base rate increase) and a 40% drop in Energy Services profitability. Thus, I project fiscal 2025 GAAP EPS of $3.04 and non-GAAP NFEPS of $2.95, both little changed from my previous report.
Even though my 2025 forecast now anticipates a decline in NFEPS (vs. fiscal 2024), I am maintaining my $50 price target. That equates to 17.1 times projected fiscal 2025 NFEPS of $2.95. The price target represents a potential total return of 14.3% from NJR’s current share price of $46.10, including its current 3.6% dividend yield. Accordingly, I am maintaining my performance rating of “2’” (Outperform).
Since my last report (12/19), NJR’s stock has risen 3.6%, underperforming the S&P Mid-Cap 400’s 10.3% gain and the Dow Jones U.S. Gas Utility Index’s 8.3% gain. Including dividends, NJR’s total return over that period is 5.7%. Yet, all of the price gain has occurred over the past seven trading sessions. As a result, the stock is now overbought, so it is unlikely that it will continue its upside trajectory for long. Given the pattern of trading, the stock seems due for a correction, but it could also consolidate these recent gains at or near its current price.
This is a summary of my recent update report on New Jersey Resources Corp. (NJR). To obtain a copy of the full report, please reach out to me using the contact information provided below.
July 18, 2024 (Report published on July 17, 2024.)
Stephen P. Percoco
Lark Research
839 Dewitt Street
Linden, New Jersey 07036
(908) 975-0250
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© 2015-2024 by Stephen P. Percoco, Lark Research. All rights reserved.
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