Clean Energy Ventures Will Expand Solar Pipeline And Improve Energy Efficiency

Key Takeaways

• Implementation of new utility rates and energy efficiency programs will enhance revenue and net margins through increased rates and real-time returns on investments.
  
• Strategic capital expenditures and a robust solar project pipeline support long-term revenue growth and expansion in clean energy infrastructure.
  
• Regulatory and execution risks, along with market volatility and supply chain challenges, could impact New Jersey Resources' revenue, margins, and earnings projections.

Catalysts

An energy services holding company, distributes natural gas.

• The implementation of new rates by New Jersey Natural Gas following the approval of their base rate case will enable recovery of $850 million in investments. This is expected to enhance revenue and net margins through increased utility rates.
  
• The SAVEGREEN energy efficiency program, with investments of $386 million through June 2027, will be added to the rate base and earn near real-time returns. This initiative is likely to drive consistent revenue growth and improved financial margin.
  
• The Clean Energy Ventures has a commercial solar project pipeline of over 1 gigawatt, with 63 megawatts under construction. This positions the company for future revenue growth and improved earnings as solar capacity increases.
  
• The Adelphia Gateway section 4 rate case is progressing with an expected resolution later this year, potentially enhancing future revenue streams and financial margins through increased capacity and utilization.
  
• The company's planned capital expenditures of $1.3 billion to $1.6 billion over the next few years aim to enhance utility infrastructure, expand the clean energy portfolio, and optimize storage and transportation assets. These investments are projected to support long-term revenue growth and an NFEPS growth target of 7% to 9%.

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 $355.3 million (and earnings per share of $3.52) by about April 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 18.9x on those 2028 earnings, up from 15.0x today. This future PE is lower than the current PE for the US Gas Utilities industry at 19.2x.
• 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 6.28%, as per the Simply Wall St company report.

New Jersey Resources Future Earnings Per Share Growth

Risks

• The company's future revenue could be impacted by uncertainties around regulatory compliance, particularly relating to the ongoing Adelphia Gateway rate case, which might influence earnings projections.
  
• Execution risks associated with significant capital expenditure plans (ranging from $1.3 billion to $1.6 billion) could pressure cash flow if not managed effectively, possibly affecting net margins.
  
• Changes or challenges in solar-related regulatory environments could disrupt Clean Energy Ventures' project pipeline, potentially impacting future earnings and revenue streams from solar investments.
  
• Market conditions affecting energy services during winter months could be unpredictable, which might result in volatility in earnings projections depending on weather impacts and energy demand.
  
• Concerns about tariffs or supply chain disruptions around utility operations or solar build-out could impose additional costs, potentially affecting net margins and financial outcomes.

Valuation

• The analysts have a consensus price target of $53.75 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 $355.3 million, and it would be trading on a PE ratio of 18.9x, assuming you use a discount rate of 6.3%.
• Given the current share price of $49.7, the analyst price target of $53.75 is 7.5% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.