Public Service Enterprise Group (PEG) 23Q3 Update

Public Service Enterprise Group (PEG) reported 23Q3 operating revenues of $2.46 billion, up 8.1% from $2.27 billion in 22Q3.  PSE&G’s operating revenues rose 2.4% to $1.99 billion.  PSEG Power & Other’s revenues increased 43.3% $0.5 billion, due to a decline in mark-to-market losses on derivative contracts.  23Q3 diluted GAAP EPS was $0.27 vs. $0.22 last year.  Non-GAAP operating EPS was $0.85 vs. $0.86.  23Q3 Non-GAAP EPS exceeded my estimate of $0.78.

Management reaffirmed its full-year 2023 non-GAAP earnings guidance of $3.40-$3.50 and its annual 6.0%-7.5% rate base growth target (to 2027), but was silent on its 5%-7% annualized non-GAAP EPS growth target.  It will provide 2024 non-GAAP operating guidance later this month, after it completes its normal business planning.  It will also post a full roll forward of its capital plan rate base (currently $15.5-$18.0 billion) and long-term non-GAAP EPS annualized growth rate target in January.  Management could reaffirm that 5%-7% growth target (rolled forward to 2024-2028), but non-GAAP operating EPS has been flat over the past few years, despite the growth in rate base.

A lot has happened over the past few years including the sale of the fossil fuel fleet, the exit from its investment in Ocean Wind 1 and the enactment of state and federal support for the nuclear industry.  Consequently, much of the potential volatility in PEG’s earnings has been lessened, which should help support the current earnings multiple even if earnings growth expectations are lowered.

My revised projections anticipate 2023 GAAP EPS of $4.65 and non-GAAP EPS of $3.49.  For 2024, I now project GAAP EPS of $3.70 and non-GAAP of $3.65.  Applying a valuation multiple of 17.5 to 2024 non-GAAP EPS of $3.64, my price target is unchanged at $65.00.  At the current quote, that represents a potential 12-month total return of 4.5%, including the stock’s 3.6% dividend yield.  Accordingly, I am lowering my performance rating a notch to “3” (Neutral).

Since my last report (8/17) PEG’s stock has advanced 5.1%, outperforming the S&P 500’s 4.2% gain and the S&P 500 Utilities sector’s 0.2% rise.  After hitting an intraday low of $53.71 on October 2, the stock rocketed to an intraday high of $65.22 on November 24, before falling back to the current level.  At this point, it seems more likely to me that the stock will trade lower to $60 before it advances back to $65.

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.

December 7, 2023 (Report originally published on December 2, 2023.)

Stephen P. Percoco
Lark Research
839 Dewitt Street
Linden, New Jersey 07036
(908) 975-0250

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