On Jun 2, 2015, we issued an updated research report on Public Service Enterprise Group Inc. PEG or PSEG. This diversified utility holding company has a solid portfolio of regulated and non-regulated utility assets that offer stable earnings and significant long-term growth potential.
Recently, it reported impressive first-quarter 2015 results with both earnings and revenues beating estimates helped by higher transmission rates, the cold winter weather effect on electric sales and weather normalized growth in gas sales.
The company’s investments in infrastructure ventures backed by a stable cash generating capacity are commendable. It continues to emphasize on building strong transmission and distribution infrastructure. The company’s utility Public Service Electric and Gas Company (PSE&G) invested approximately $600 million in transmission and distribution upgrades during the first quarter as part of its full-year $2.6 billion investment program.
Furthermore, Public Service Enterprise has plans to invest a total of $13 billion between 2015 and 2019. Around 74.6% is expected to be allocated for transmission and distribution operations. It has started working on a three-year $1.22 billion Energy Strong program. The move is mainly intended to modernize and strengthen PSE&G’s distribution systems to better withstand severe weather. The utility also proposed investing an added $1.6 billion over the next five years to modernize PSE&G’s gas systems. Scheduled completion of these projects will enable the company to provide reliable services to its customers.
Again, the company has taken noticeable steps in expanding its renewable capacity. Since 2009, PSE&G has invested over $700 million in directly constructing or financing more than 160 MW of clean energy. In 2014, it added various utility-scale solar ventures in Maryland, Texas and Vermont, resulting in total renewable energy capacity of 123 MW in nine states. The company plans to invest $0.3 billion in solar and Energy Efficiency programs between 2015 and 2019. In Apr 2015, PSE&G received approval from the NJ Board of Public Utilities to invest an additional $95 million over a three-year period in Energy Efficiency programs.
In fact, Public Service Enterprise continues to undertake several initiatives to support New Jersey’s renewable energy goals and Energy Master Plan. Under this plan, the company aims to generate 30% electricity from renewable sources by 2020.
On the downside, participation in the wholesale energy market exposes Public Service Enterprise to commodity price volatility, which is inherently cyclical in nature.
Moreover, environmental issues, such as restrictions on carbon dioxide emissions and other pollutants produced by Public Service Enterprise’s fossil units, might increase compliance-related costs. These factors could impact the financial performance of the company and limit profitability.
Zacks Rank
The stock has a Zacks Rank #3 (Hold). Other better-ranked stocks in the utility space are National Grid plc NGG, CMS Energy Corp. CMS and DTE Energy Company DTE. While National Grid holds a Zacks Rank #1 (Strong Buy), CMS Energy and DTE Energy carry a Zacks Rank #2 (Buy).
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