Public Service Enterprise Group (PEG) 22Q2 Update

Public Service Enterprise Group (PEG) reported 22Q2 operating revenues of $2.08 billion, up 10.8% from 21Q2.  GAAP EPS was $0.26 vs. a loss of $0.35 a year ago.  Most of last year’s loss was related to a net $457 million loss on write-down of its ISO fossil assets, which have been sold, offset partially by a gain on the sale of PEG’s solar assets.  Excluding that loss, and other gains or losses on derivatives and investments, the company posted non-GAAP operating earnings of $0.64, down from $0.70 in 21Q2.

Management affirmed its 2022 non-GAAP operating earnings guidance of $3.35-$3.55 per share, 90% of which is expected to come from PEG’s regulated utility, PSE&G.  PEG also affirmed its three-year EPS annual growth target of 5%-7%.  Earnings growth is supported by regulated investment programs that grow PSE&G’s rate base.  2022 capital spending is expected to be $2.9 billion.

The company has announced that COO Ralph LaRossa will become President and CEO on September 1 and assume the Chairman’s role at the end of the year, when Ralph Izzo retires.

PEG’s stock has outperformed the S&P 500 this year, as utilities have been a safe haven during the recent sell-off; but it has underperformed the Dow Jones Utility Average, of which it is a member.  This has been a reset year for PEG, following the sale of its fossil fuel and solar fleets.  2022 non-GAAP operating earnings guidance at the midpoint of $3.45 is modestly below 2021’s $3.60.  Most other utilities anticipate earnings growth.  Even so, PEG’s stock had outperformed both the market and peers until mid-April, right before Mr. Izzo’s announced retirement.  Since then, it has underperformed both the S&P 500 and the DJUA.

Utilities, which have performed in line with the broader market since May, could underperform as investors rotate into stocks with perceived greater upside potential.  Yet, PEG now trades at a greater discount to peers, so it could catch up after Mr. LaRossa takes the reins and earnings growth resumes as it exits its reset year.  Accordingly, I am raising my rating on PEG’s stock to outperform with a price target of $72. The price target is based upon a one-year forward multiple of 20, just below the peer group average, on projected 2023 non-GAAP earnings of $3.57. Along with its dividend yield of 3.3%, that equates to a potential total return of 14.6%, from the current quote (8/4) of $64.73.

This is a summary of my recent update report on Public Service Enterprise Group (PEG). For a copy of the full report, please reach out to me using the contact information listed below.

August 5, 2022

Stephen P. Percoco
Lark Research
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Linden, New Jersey 07036
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