Disciplined Capital Deployment And Energy Efficiency Will Secure Progress

Key Takeaways

• Strategic innovation, disciplined capital deployment, and operational excellence aim to drive sustainable growth and positively impact NJR's future revenues.
  
• Diversified energy investments, including the SAVEGREEN program and solar projects, are expected to improve margins and generate stable, predictable cash flows.
  
• Tariff, regulatory, and economic uncertainties could impact project costs, earnings growth, utility revenues, and revenue potential across New Jersey Resources' ventures.

Catalysts

An energy services holding company, distributes natural gas.

• NJR is focused on disciplined capital deployment, operational excellence, and strategic innovation, which are expected to drive long-term sustainable growth and impact their future revenue positively.
  
• The wholesale gas marketing business has shown strong performance by capitalizing on pricing volatility, leading to an increased fiscal 2025 NFEPS guidance, which is likely to enhance earnings.
  
• Investments in energy efficiency through the expanded SAVEGREEN program, that earn near real-time returns, are set to improve net margins and long-term revenue stability.
  
• A growing and diversified solar project pipeline, including investments outside New Jersey and a robust SREC hedging strategy, positions Clean Energy Ventures to continue generating stable, predictable cash flows, impacting earnings and revenue positively.
  
• Continued infrastructure investments in Storage and Transportation, such as the capacity recovery project at Leaf River, aim to enhance system reliability and provide steady fee-based revenues, which will bolster financial margins and earnings growth.

New Jersey Resources Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming New Jersey Resources's revenue will grow by 3.7% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 18.2% today to 17.5% in 3 years time.
• Analysts expect earnings to reach $355.5 million (and earnings per share of $3.51) by about May 2028, up from $331.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.0x on those 2028 earnings, up from 14.7x today. This future PE is lower than the current PE for the US Gas Utilities industry at 19.1x.
• Analysts expect the number of shares outstanding to grow by 1.48% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.32%, as per the Simply Wall St company report.

New Jersey Resources Future Earnings Per Share Growth

Risks

• Tariff and supply chain uncertainties could potentially increase project costs for Clean Energy Ventures, impacting returns on investments and financial margins.
  
• The pace of capital deployment in Clean Energy Ventures may be affected by the fluid situation around tariffs and project costs, possibly impacting long-term earnings growth and cash flows.
  
• The energy master plan and legislative changes in New Jersey could introduce regulatory risks, affecting future utility revenues and investment recovery.
  
• A potential lack of contract completion and cost uncertainties in the Leaf River expansion project could delay or deter investment, impacting expected revenues from Storage and Transportation.
  
• Economic conditions and legislative initiatives focused on affordability in New Jersey could constrain future rate increase potential for NJ Natural Gas, influencing revenue and net margins.

Valuation

• The analysts have a consensus price target of $54.0 for New Jersey Resources based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $60.0, and the most bearish reporting a price target of just $48.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.0 billion, earnings will come to $355.5 million, and it would be trading on a PE ratio of 19.0x, assuming you use a discount rate of 6.3%.
  
• Given the current share price of $48.74, the analyst price target of $54.0 is 9.7% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.