New Clean Energy Investments Will Attract Large Customers And Create Revenue Opportunities

Key Takeaways

• The company's investments in energy efficiency and infrastructure modernization could enhance rate base growth and support revenue and earnings.
  
• Stabilizing rates with deferral mechanisms and no new equity issuance might preserve shareholder value and potentially increase earnings per share.
  
• Rising capacity prices and increased capital spending could affect PSEG's revenue stability, with risks from market changes and potential supply shortages impacting earnings.

Catalysts

Through its subsidiaries, operates in electric and gas utility, and nuclear generation businesses in the United States.

• Approval to invest $2.9 billion over six years in the Clean Energy Future Energy Efficiency 2 program, allowing for increased investments that could reduce energy usage and improve affordability, potentially boosting revenue.
  
• Planned $4 billion investment in 2025 and a 5-year capital spending plan of $22.5 billion to $26 billion, focused on regulated investments and infrastructure modernization, expected to enhance rate base growth and support revenue and earnings.
  
• Significant increase in inquiries from large load and data center customers, expanding potential partnerships and demand, which may lead to increased revenue opportunities.
  
• Implementation of new deferral mechanisms for pension and storm expense that stabilize rates and increase predictability of financial results, likely supporting more stable net margins.
  
• No need to issue new equity or sell assets through 2029, preserving shareholder value and potentially increasing earnings per share as a result of maintaining financial strength alongside sustained capital investment.

Public Service Enterprise Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Public Service Enterprise Group's revenue will grow by 6.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 17.2% today to 19.1% in 3 years time.
• Analysts expect earnings to reach $2.4 billion (and earnings per share of $4.57) by about March 2028, up from $1.8 billion today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $2.7 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 22.4x on those 2028 earnings, down from 23.1x today. This future PE is greater than the current PE for the US Integrated Utilities industry at 22.1x.
• Analysts expect the number of shares outstanding to grow by 0.1% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

Public Service Enterprise Group Future Earnings Per Share Growth

Risks

• The upcoming increase in residential electric bills starting June 1, driven by rising capacity prices from PJM's auction results, could impact customer affordability and, in turn, PSEG's revenue stability as energy costs rise.
  
• Potential execution risks related to PSEG's significant increase in planned capital spending ($3.5 billion above prior plan) could affect financial results if projects do not generate the expected returns, impacting earnings and net margins.
  
• The uncertain outlook and structural changes in the PJM market, particularly regarding resource adequacy and new power generation, pose risks to PSEG's nuclear revenue streams and could impact future earnings.
  
• The state's reliance on PJM's capacity market amid New Jersey being a net importer of electricity could exacerbate financial risks due to potential supply shortages and price volatility, possibly affecting PSEG's future revenue.
  
• Although there is significant demand for data center loads, the timing and successful completion of these projects could delay the realization of revenue growth and impact earnings projections.

Valuation

• The analysts have a consensus price target of $88.184 for Public Service Enterprise Group 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 $102.0, and the most bearish reporting a price target of just $69.12.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $12.4 billion, earnings will come to $2.4 billion, and it would be trading on a PE ratio of 22.4x, assuming you use a discount rate of 6.2%.
• Given the current share price of $82.17, the analyst price target of $88.18 is 6.8% 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.