Public Service Enterprise Group (PEG) 23Q2 Update

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

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