Public Service Enterprise Group (PEG) reported 22Q3 operating revenues of $2.27 billion, up 19.4% from 21Q3. The increase in revenues was due mostly to higher gas supply sales to third parties at PEG Power and higher commodity revenues, including higher electric sales volumes and higher gas BGSS prices at PSE&G. GAAP EPS was $0.22 vs. a loss of $3.10 a year ago. Most of last year’s loss was due to an impairment charge associated with the sale of its fossil generating assets. On a non-GAAP basis, operating earnings were $0.86, down from $0.98 in 21Q3.
In his first conference call as President and CEO Ralph LaRossa affirmed and narrowed PEG’s 2022 non-GAAP operating earnings guidance from $3.35-$3.55 per share to $3.40-$3.50. He also reaffirmed its 5%-7% annualized EPS growth target to 2025, with the understanding that growth in any one year may fall outside of the target range. This suggests for example, that if EPS growth in 2023 is below the long-term target, higher growth in subsequent years should make up for the shortfall.
The long-term EPS growth target is supported by investments in transmission and distribution infrastructure that will grow the company’s regulated rate base steadily over time. PEG is also evaluating a final investment decision for its 25% equity investment in the Ocean Wind 1 offshore wind project on whether to proceed to the construction phase. It is also reviewing its option to purchase 50% of Orsted’s Skipjack 2 project offshore Maryland, as well as other investment opportunities offshore New Jersey.
Since my last report in early August, PEG’s stock has fallen 13%, worse than the 10% drop in the S&P 500 Utilities Index and the 7.1% decline in the S&P 500. After outperforming through most of 2022, utility stocks have underperformed the broader market since late September. The declines have reduced forward P/E multiples for the utility sector, requiring a reevaluation of my price target for PEG.
Based upon the compression of utility stock multiples that has occurred over the past two months, I am reducing my price target on the stock to $61 from $72. My 2023 non-GAAP operating earnings estimate is up a penny to $3.58, but I have reduced the valuation multiple to 17 from 20. At the current price of $56.61, the revised price target equates to a potential total return of 11.6%, including the 3.8% dividend yield. Accordingly, I am maintaining my performance rating on PEG’s stock at “2” (Outperform).
This is a summary of my recent update report on Public Service Enterprise Group (PEG). To obtain a copy of the full report, please reach out to me using the contact information provided below.
November 3, 2022
Stephen P. Percoco
Lark Research
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