Public Service Enterprise Group Earnings: Growth Depends On Key Upcoming Regulatory Decisions

We are reaffirming our $65 per share fair value estimate for Public Service Enterprise Group PEG after the company reported $0.70 per share of operating earnings in the second quarter, up from $0.64 in the second quarter of 2022. We are maintaining our narrow moat rating.

We continue to believe that the company will hit the high end of management’s 5%-7% annual long-term earnings growth target as capital investment accelerates during the next four years. Our 2023 operating earnings estimate remains in line with management’s $3.40-$3.50 EPS guidance.

PSEG’s stock trades at a slight discount to our fair value estimate as of Aug. 1 after bouncing 12% off its mid-March lows when it reached a 4-star rating. We think its 3.6% dividend yield and growth potential still offer an attractive total return opportunity for investors.

Earnings growth at PSEG’s rate-regulated New Jersey utility, Public Service Electric and Gas, or PSE&G, offset a slight drop in earnings at PSEG’s nonutility business during the second quarter, in line with our expectations. We expect substantially all of PSEG’s operating earnings growth this year will come from PSE&G.

We continue forecast PSE&G will invest $18 billion during the next five years, at the high end of management’s target range. Reaching this investment level will require constructive regulatory outcomes related to New Jersey’s clean energy policies. We expect decisions from regulators within the next year on PSEG’s investment proposals for energy efficiency, gas system modernization, electric vehicle charging, advanced metering, and offshore wind transmission.

A key development during the second quarter was PSEG’s sale of its 25% offshore wind ownership option to Orsted in return for reimbursement of PSEG’s investment in the Ocean Wind project. We think this is a positive outcome for shareholders as PSEG offloads project risk without a material financial impact.