Public Service Enterprise Group Earnings: Growth on Track as Key Regulatory Discussions Continue

We are reaffirming our $65 per share fair value estimate for Public Service Enterprise Group PEG after the company reported earning $1.39 per share in the first quarter, up from $1.33 in the first quarter of 2022. We are maintaining our narrow moat and stable moat trend ratings for PSEG.

We continue to believe that the company will hit the high end of management’s 5%-7% annual earnings growth target as capital investment accelerates during the next four years. Our 2023 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 May 2 after bouncing 13% 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 at PSEG’s rate-regulated New Jersey utility, Public Service Electric and Gas, or PSE&G, were slightly lower than the first quarter of 2022, but most of that was due to items like pension expense and taxes that should smooth out over the year. Strong first-quarter earnings from PSEG Power also should ease, resulting in most of the full-year growth coming from PSEG.

PSEG’s usage-decoupled rate structure made it one of the few utilities in the eastern U.S. that didn’t experience a huge financial impact from an exceptionally warm winter. Winter weather in the first quarter was the warmest in PSEG’s century-long history, according to management.

We continue forecast the utility will invest $18 billion during the next five years, at the high end of management’s target range. We think annual capital investment could approach $4 billion beyond 2027 based on New Jersey’s clean energy policies. A key near-term sign of support should come within the next year as regulators evaluate PSEG’s proposed plans related to energy efficiency, gas system modernization, electric vehicle charging, advanced metering, and offshore wind connections.