On Mar 28, 2016, we updated a research report on Public Service Enterprise Group Inc. PEG, or PSEG.
Based in Newark, NJ, Public Service Enterprise is a diversified utility holding company. Its operations are mostly located in the Northeastern and Mid-Atlantic parts of the U.S. The company principally operates through two key subsidiaries – PSEG Power LLC and Public Service Electric and Gas Company (PSE&G).
Public Service Enterprise has a solid portfolio of regulated and non-regulated utility assets that offer stable earnings and significant long-term growth potential. The company strives to optimize generation margins by improving its cost structure and performance, as well as the reliability of its nuclear and fossil fuel-based facilities. Going forward, a low-cost nuclear fleet and added generating capacity should drive bottom-line growth.
The company continues to meet its capital investment and operations-related goals. It continues to emphasize on building strong transmission and distribution infrastructure. In the 2016–2020 time frame, PSE&G plans to invest $11.9 billion in various capital initiatives. The majority of the amount will be focused on the development and up-gradation of its transmission and distribution systems. Recently, the company announced its plans to spend $16 billion over the next five years, marking an increase of $3.0 billion from its earlier projection of a $13 billion investment.
Apart from focusing on its transmission and distribution infrastructure, Public Service Enterprise is also expanding its renewable assets. In 2015, it added two utility-scale projects, representing an investment of about $75 million in solar energy. In early 2016, the company announced that it will invest an additional $150 million in three projects, thereby bringing its portfolio of solar projects to 240 MW of clean renewable energy. Again, the company’s stable liquidity and cash flows provide substantial financial flexibility and a cushion against the present business environment, which allows it to return cash to shareholders through regular dividend payments.
On the flip side, participation in the wholesale energy market exposes Public Service Enterprise to commodity price volatility, which is cyclical in nature. Demand side management and other efficiency efforts designed to change the quantity and usage patterns of consumers could result in reduced load requirements. Moreover, environmental issues, such as restrictions on carbon dioxide emissions and other pollutants produced by Public Service Enterprise’s fossil units, might push up compliance-related costs. All these factors could impact the financial performance of the company and limit profitability.
Moreover, the company’s business operations are extensively regulated by different federal, state and local agencies. Inability to comply with these laws and regulations could have an adverse impact on its future earnings and growth. The utility provider’s financial performance may also be affected by operational risks such as equipment breakdown, failure or damage of equipment or processes, and accidents and labor disputes in its transmission and distribution businesses.
Zacks Rank & Key Picks in the Sector
PSEG currently has a Zacks Rank #3 (Hold). A few better-ranked stocks in the same industry include DTE Energy DTE, CenterPoint Energy, Inc. CNP and CMS Energy Corp. CMS, each carrying a Zacks Rank #2 (Buy).
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