SJI’s utility businesses – South Jersey Gas Company (SJG) and Elizabethtown Gas Company (ETG) – are its core growth engines. Representing 70%-80% of consolidated profits, they have grown by pursuing regulatory-approved infrastructure investment programs and gaining customers from new construction and alternative heating conversions. SJI also pursues growth its nonutility businesses; but its performance there has been mixed.
Management anticipates 2021 economic earnings (a non-GAAP measure) of $180 million or $1.65 per share. That guidance implies that second half economic earnings will be moderately below prior year levels. Yet, both the utility and nonutility businesses have so far posted solid gains vs. the prior year. Consequently, there could be upside to earnings expectations. For 2021, I project economic earnings per share of $1.67, increasing to $1.75 in 2022.
SJI’s stock trades at less than 13 times forward economic earnings, which is below the peer group average of 16-17. Its dividend yield is 5.7%, above the peer group average of 3.3%. The price discount and higher yield may reflect concerns about the future performance of the nonutility business, which has been undergoing a transition, and the recent and possible future dilution from equity issuance. With greater clarity in the nonutility outlook (and improved profitability that should accompany it), the valuation discount should decline over time.
SJI’s high dividend yield and low valuation suggest the stock should outperform the broader market and its peer group over the next 12 months. My price target of $25 anticipates an increase in the forward multiple to 14 times projected 2022 economic earnings.
This is a summary of my recent report on South Jersey Industries, Inc. For a copy of that report, reach out to me directly.
September 30, 2021
Stephen P. Percoco
Lark Research
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