Public Service Enterprise Group (PEG) reported 23Q2 operating revenues of $2.42 billion, up 16.6% from $2.08 billion in 22Q2. PSE&G’s operating revenues were flat at $1.66 billion. PSEG Power & Other’s revenues increased 40% $0.9 billion, due to a large positive swing in mark-to-market profits on derivative contracts, which more than offset declines in third-party and intercompany sales.
23Q2 diluted GAAP EPS was $1.18 vs. $0.26 last year. Non-GAAP operating EPS was $0.70 vs. $0.64. The swing of $0.84 in exceptional items (excluded from non-GAAP EPS) was due almost entirely to the after-tax impact of those derivative gains. 23Q2 Non-GAAP EPS exceeded my estimate of $0.54.
Management reaffirmed its full-year non-GAAP operating earnings guidance of $3.40-$3.50 and its 5%-7% annualized (non-GAAP) EPS growth target to 2027. Since operating earnings will be flat in 2023, achieving the EPS growth target will require an acceleration in growth in 2024 and beyond. In support of that objective, PEG expects to grow its utility rate base by 6.0%-7.5%’s five-year annually through its $15.5-$18.0 billion capital spending plan. That assumes that a few key infrastructure upgrade programs will be routinely renewed or extended by the NJ Board of Public Utilities.
YTD, PEG’s stock has achieved a total return of 0.8%, underperforming the S&P 500’s 15.9% advance, but outperforming the S&P 500 Utilities sector’s 8.8% decline. Rising interest rates and high valuations relative to earnings growth have caused some compression in utility valuation multiples. However, earnings performance relative to analysts’ expectations has also been a key factor in individual stock performance. On that score, PEG has exceeded non-GAAP estimates handily for the past two quarters.
My projections anticipate 2023 GAAP EPS of $4.81 and non-GAAP EPS of $3.46. For 2024, I project GAAP EPS of $3.69 and non-GAAP of $3.70. Applying a valuation multiple of 17.5 to 2024 non-GAAP EPS of $3.67, my price target remains $65.00. At the current quote, that represents a potential 12-month total return of 11%, including the stock’s 3.8% dividend yield. Accordingly, I am raising my performance rating a notch to “2” (Outperform). Since my last report, PEG’s stock rallied to $65, but it has since fallen back. Its turnaround over the past few days might be a sign that it is finding a support level. Utility stocks, like PEG, may perform relatively well in a market correction, especially if interest rates are at or near a peak.
This is a summary of my recent report on Public Service Enterprise Group Incorporated (PEG), which was published on August 17, 2023. To obtain a copy of the full report, please reach out to me using the contact information provided below.
August 18, 2023
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.