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Public Service Enterprise Group Inc. or PSEG (PEG - Analyst Report) reported second quarter 2013 earnings of 48 cents per share, beating the Zacks Consensus Estimate of 46 cents by 4.3%. The results were also up 11.6% year over year. The upside reflects locational advantage for the merchant generating fleet of assets and sound operational performance.

Total Revenue

Revenue in the reported quarter was $2,310.0 million, up 10.1% from the year-ago figure of $2,098.0 million and 3.8% from the Zacks Consensus Estimate of $2,225.0 million.

In the second quarter, Electric sales volume in the reported quarter declined 2.5% year over year to 9,724 million kwh, while gas sales volume was up 10.5% to 245 million therms.

Highlights of the Release

Total operating expenses were $1,698.0 million, up approximately 2% from the year-ago level. The increase in total expenses was primarily due to a 2.7% rise in operating and maintenance costs as well as an 11% jump in depreciation and amortization expenses.

Increase in operating expenses was offset by higher revenues, resulting in an operating income of $612 million, up 41.3% year over year.

Segment Performance

PSEG Power: Segment operating earnings were $114.0 million in the quarter, up from $110.0 million in the prior-year period. The results were driven by higher PJM capacity prices and an improvement in market prices for energy with an increase in the price of gas.

PSE&G: The segment generated operating earnings of $121.0 million, up 19.8% year over year. The results reflect contribution to earnings from heightened transmission investment.

PSEG Energy Holdings: Segment operating earnings were $8.0 million, up from the prior-year figure of $4.0 million.

2013 Guidance

The company reaffirmed its operating earnings per share guidance for 2013 in the range of $2.25 to $2.50. The group expects the year to benefit from its proposed 10-year, $3.9 billion Energy Strong investment program.

The company forecasts operating earnings from PSE&G to range from $580 million to $635 million, earnings from PSEG Power to range from $535 million to $600 million and PSEG Energy Holding/Energy to range from $25 million to $35 million.

At the Peer

Recently, Calpine Corp. (CPN - Snapshot Report) posted an adjusted loss of 7 cents per share for the second quarter of 2013 as against the Zacks Consensus Estimate as well as the year-ago earnings of 8 cents and 3 cents per share, respectively.

Our Take

Despite slow growth in electric demand and low prices, Public Service Enterprise Group’s top line as well as bottom line succeeded in beating the Zacks Consensus Estimate. Public Service Enterprise Group has a solid portfolio of regulated and non-regulated utility assets that offer a stable earnings base and substantial long-term growth potential. Also, the company is taking several initiatives to improve financial stability and reduce its overall risk profile.

However, increasing cost of coal, higher pension & financial costs and power-price volatility keep us concerned. The company currently has a Zacks Rank #3 (Hold).

Stocks that look better positioned are NiSource Inc. (NI - Analyst Report) and NRG Energy, Inc. (NRG - Analyst Report), both with a Zacks Rank #2 (Buy).

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