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
839 Dewitt Street
Linden, New Jersey 07036
(908) 975-0250
admin@larkresearch.com
© 2015-2024 by Stephen P. Percoco, Lark Research. All rights reserved.
This blog post (as with all posts on this website) represents the opinion of Lark Research based upon its own independent research and supporting information obtained from various sources. Although Lark Research believes these sources to be reliable, it has not independently confirmed their accuracy. Consequently, this blog post may contain errors and omissions. Furthermore, this blog post is a summary of a recent report published on this subject and that report provides a more complete discussion and assessment of the risks and opportunities of any investment securities discussed herein. No representation or warranty is expressed or implied by the publication of this blog post. This blog post is for informational purposes only and shall not be construed as investment advice that meets the specific needs of any investor. Investors should, in consultation with their financial advisers, determine the suitability of the post’s recommendations, if any, to their own specific circumstances. Lark Research is not registered as an investment adviser with the Securities and Exchange Commission, pursuant to exemptions provided in the Investment Company Act of 1940. This blog post remains the property of Lark Research and may not be reproduced, copied or similarly disseminated, in whole or in part, without its prior written consent.