PEG: Data Center Demand And Regulation Will Drive Future Upside

Our updated fair value estimate for Public Service Enterprise Group edges down by approximately $1 to $89.50 per share, as analysts temper margin assumptions and valuation multiples, while still highlighting supportive sector tailwinds, constructive regulation and improving growth prospects relative to peers.

Analyst Commentary

Recent Street commentary on Public Service Enterprise Group reflects a generally constructive stance on the company within a utilities sector that many see as structurally undervalued, but with some caution around near term regulatory and political noise. Target price revisions have been modest in both directions, suggesting investors are refining assumptions rather than fundamentally changing their thesis.

Across the coverage universe, bullish analysts emphasize the combination of supportive long term demand from electrification and data centers, constructive regulatory frameworks and PSEG's potential to close its performance gap versus peers. More cautious voices point to election related uncertainty in New Jersey, limited near term asset catalysts and questions about how quickly storage and generation investments will translate into earnings accretion.

Bullish Takeaways

• Valuation is seen as attractive after underperformance, with some bullish analysts highlighting PSEG as one of the weakest performers among non California utilities in 2025. This is viewed as creating room for multiple expansion if execution improves.
• Several price target increases and Buy ratings point to confidence that secular demand growth from data centers and grid upgrades can support mid to high single digit earnings growth and justify premiums to historic valuation ranges.
• Commentary around PSEG's political and regulatory positioning frames the company as adept at aligning storage and grid investment with customer savings. This is seen as a factor that could mitigate rate freeze fears and support constructive rate base growth.
• Inclusion among preferred integrated utility names leveraged to constructive regulation and generation build out suggests PSEG is viewed as well placed to capture a share of what is described as a once in a generation capital deployment cycle.

Bearish Takeaways

• Recent modest price target cuts indicate that some bearish analysts are tempering expectations for near term upside, trimming valuation multiples as they factor in softer sector performance versus the broader market in recent months.
• Political risk in New Jersey, particularly around noisy election dynamics and potential rate actions, is viewed as an overhang that could delay or dilute recovery in returns and constrain near term earnings visibility.
• Lack of material updates on contracting for nuclear units or new near term generation asset builds is seen as a missed catalyst, limiting arguments for a step change in growth or re rating in the short term.
• Neutral or Equal Weight initiations suggest that while the long term structural story is attractive, execution proof points on earnings acceleration and capital deployment are still required before more aggressive upside cases are considered.

What's in the News

• The Long Island Power Authority Board of Trustees has approved a five year extension of PSEG Long Island's contract to operate the electric grid on Long Island and in the Rockaways. The new term will run from January 1, 2026 through December 31, 2030, pending approval by the New York State Comptroller and Attorney General (company announcement).
• PSEG Long Island highlights significant reliability gains since 2014, including a 35 percent reduction in outage frequency, a 21 percent reduction in outage duration and a 63 percent reduction in momentary outages. These are cited as key performance metrics supporting the contract extension (company announcement).
• Safety performance has improved by more than 75 percent for PSEG Long Island's workforce, as measured by OSHA Recordable Incident Rate. This reinforces the utility's operational track record under the existing agreement (company announcement).
• PSEG Long Island reports the lowest Department of Public Service complaint rate among New York State electric and combined utilities in nine of the past eleven years, along with the lowest rate increases versus regional peers. These factors support the utility's customer focused credibility (company announcement).
• Customer satisfaction scores have improved materially, with PSEG Long Island cited as the most improved utility nationally in J.D. Power residential and business customer satisfaction rankings. This supports expectations for continued strong service under the renewed contract (company announcement).

Valuation Changes

• The fair value estimate has edged down slightly from about $90.61 to $89.50 per share, reflecting modestly more conservative assumptions.
• The discount rate has risen slightly from approximately 6.78 percent to 6.96 percent, implying a marginally higher required return for investors.
• Revenue growth has increased moderately from around 3.53 percent to 4.30 percent, indicating a stronger outlook for top line expansion.
• The net profit margin has declined modestly from roughly 19.93 percent to 18.50 percent, signaling somewhat lower expected profitability on future revenues.
• The future P/E has eased slightly from about 22.44x to 22.26x, suggesting a small compression in the valuation multiple applied to forward earnings.