Public Service Enterprise Group (PEG) reported 24Q2 operating revenues of $2.42 billion, unchanged from 23Q2. PSE&G’s operating revenues rose 26.2% to $1.86 billion. PSEG Power & Other’s net revenues, excluding sales to affiliates, fell 24.2% to $0.68 billion. 24Q2 diluted GAAP EPS was $0.87 vs. $1.18 last year. Non-GAAP operating EPS was $0.63 vs. $0.70. 24Q2 Non-GAAP EPS was below my estimate of $0.75. Compared to my projections, the shortfall in non-GAAP earnings was due entirely to proportionately higher mark-to-market gains (which are excluded from non-GAAP earnings).
Yet, management once again reaffirmed its full-year 2024 non-GAAP earnings guidance of $3.60-$3.70, its annual 6.0%-7.5% rate base growth target (to 2028) and its 5%-7% annualized non-GAAP EPS growth target. PSEG expects to spend $18.0-$21.0 billion under its capital investment program from 2024-2028, funded with internally generated cash and debt, without asset sales or new equity issuance.
I have made meaningful changes to my projection model, raising my 2024 GAAP EPS estimate to $3.79, up from $3.63 previously. Much of the difference is due to 24Q2’s significantly lower tax rate. My 2024 non-GAAP estimate is unchanged at $3.67, while my 2025 GAAP and non-GAAP estimates are also unchanged at $4.15 and $4.00, respectively. The projected 9% increase in 2025 non-GAAP earnings is above the high end of PEG’s 5%-7% target. This reflects an expected settlement of PSE&G’s electric and gas distribution rate case later this year, which could raise PSE&G’s annual revenues by as much as 9%. PSEG is also awaiting a decision on its proposed $3.1 billion Clean Energy Future – Energy Efficiency II program, which would cover commitments from 2025 through June 2027 (for investments to be made through 2030).
Since my 2025 estimates are unchanged, I am maintaining my $80 price target. That implies a one-year forward valuation multiple of 20 applied to projected 2025 non-GAAP EPS of $4.00. At the current quote, the PT represents a potential 12-month total return of 6.6%, including the stock’s 3.1% dividend yield. Accordingly, I am lowering my performance rating a notch from “2” (Outperform) to “3” (Neutral).
YTD, PEG’s stock has advanced 26.4%, better than the S&P 500’s 8.7% and the S&P 500 Utilities sector’s 12.4% rise. The stock’s valuation is now close to that of the broader market and at a meaningful premium to peers. My price target assumes that this premium will only begin to recede in the coming months.
This is a summary of my recent 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.
August 7, 2024 (Report published on August 5, 2024.)
Stephen P. Percoco
Lark Research
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© 2015-2024 by Stephen P. Percoco, Lark Research. All rights reserved.
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