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Analyst Blog

We have maintained our Neutral recommendation on Public Service Enterprise Group Inc. (PEG - Analyst Report) on Sep 13, 2013.

Why the Reiteration?

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. Despite slow economic growth, second quarter results surpassed the Zacks Consensus Estimate on the back of stepped-up transmission investment, higher capacity prices and an improvement in market prices for energy. Going forward, the low-cost nuclear fleet, and added generating capacities will drive Public Service’s earnings growth.

The company has been taking several measures to improve its financial stability and reduce the overall risk profile. This includes opportunistically monetizing assets that no longer are a strategic fit, reducing international exposure, significantly hedging future generation business and paying down debt. The company has also been pursuing growth opportunities in the core U.S. market and increasing capital allocation in projects that provide good risk-adjusted returns.

Moreover, the company’s strong balance sheet and cash flows provide substantial financial flexibility and a cushion in the present challenging business environment. The company ended the second quarter 2013 with total liquidity of approximately $4.46 billion. Also, the company continues to return cash to its shareholders via common dividend payouts. Currently, the company pays a quarterly dividend of 36 cents with a dividend yield of 4.45%.

Despite these positives, we remain concerned about the increasing cost of coal, higher pension & financial costs, power-price volatility and probable storm restoration.

Other Stocks to Consider

Public Service Enterprise Group presently retains a Zacks Rank #3 (Hold). Stocks that are worth considering in the space are Brookfield Infrastructure Partners L.P. (BIP - Snapshot Report), Integrys Energy Group, Inc. (TEG - Analyst Report) and IdaCorp, Inc. (IDA - Snapshot Report), all with a short-term Zacks Rank #2 (Buy).

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