Public Service Enterprise Group Earnings: Performance on Track Going Into 2024

We are reaffirming our $65 per share fair value estimate for Public Service Enterprise Group PEG after the company reported $0.85 per share of operating earnings in the third quarter, mostly flat from the third quarter of 2022. We are maintaining our narrow moat rating.

The company remains on track to hit the high end of management’s 5%-7% annual long-term earnings growth target as capital investment accelerates during the next four years. We expect management to update its capital investment plan and earnings outlook for 2024 and beyond late this year. Our 2023 operating earnings estimate remains in line with management’s $3.40-$3.50 EPS guidance.

PSEG’s stock trades at a 7% discount to our fair value estimate as of Oct. 30. Despite some big stock price swings throughout the year, PSEG’s stock is mostly flat year-to-date, far outperforming the utilities sector, which is down 17%. We think PSEG’s 3.8% dividend yield and growth potential still offer an attractive total return for investors.

Substantially all of PSEG’s operating earnings growth during the next few years is set to come from PSEG’s rate-regulated New Jersey utility, Public Service Electric and Gas. Management’s plan to file a request in December for new electric rates should boost earnings in late 2024 and 2025.

We continue to believe management will raise its three-year capital investment plan in part to incorporate $900 million of gas distribution investment that New Jersey regulators recently approved and more investment in energy efficiency projects. We think new transmission projects are another source of growth investment.

We assume $20 billion of capital investment during the next five years after incorporating management’s latest updates, above the high end of management’s current plan.

PSEG is one of the few utilities that should not need to raise equity to fund its growth plan, giving management the flexibility to accelerate dividend growth.