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PSEG (PEG) Up 2.4% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for PSEG (PEG - Free Report) . Shares have added about 2.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is PSEG due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Public Service Enterprise Q3 Earnings Beat Estimates

Public Service Enterprise Group or PSEG reported third-quarter 2018 adjusted operating earnings of 95 cents per share, surpassing the Zacks Consensus Estimate of 92 cents by 3.3%. The bottom line also increased 15.9% on a year-over-year basis.

Excluding one-time adjustments, the company reported quarterly earnings of 81 cents per share compared with 78 cents in third-quarter 2017.

Total Revenues

Revenues of $2,394 million in the quarter missed the Zacks Consensus Estimate of $2,622 million by 8.7%. However, the figure improved 6.2% from the year-ago quarter’s figure of $2,254 million.

In the reported quarter, electric sales volumes increased 6.4% to 12,491 million kilowatt-hours, while gas sales volumes surged 34.1% to 644 million therms.

For electric sales, results reflected a 2.9% rise in the commercial and industrial sector, 12.6% rise in residential sector, 8.9% rise in street lighting and a 1.1% drop in interdepartmental sector.

Total gas sales volumes declined on 57.2% drop in non-firm sales volumes of gas and a 1.5% decline in firm sales volumes of gas.

Highlights of the Release

During the third quarter of 2018, the company reported operating income of $554 million, down from $693 million in the year-ago quarter. Total operating expenses were $1,840 million, up 17.9% from the year-ago quarter.

Interest expenses in the reported quarter were $127 million compared with $100 million in the year-ago quarter.

Segment Performance

PSE&G: Segment earnings were $278 million, up from $246 million in the prior-year quarter. Quarterly results reflect PSE&G’s increased revenues from the ongoing transmission and distribution infrastructure investment programs. Also, warm summer weather increased sales volumes compared to third-quarter 2017 that witnessed mild weather.

PSEG Power: Segment earnings were $125 million compared with $136 million a year ago. The downside can be attributed to increase in fuel costs, depreciation and interest expenses.

PSEG Enterprise/Other: Segment earnings were $9 million compared with $13 million in the third quarter of 2017. The decrease in year over year net income reflects higher interest expenses at the parent company.

Financial Update

Long-term debt as of Sep 30, 2018, was $14,359 million, up from the 2017-end level of $13,068 million.

PSEG generated $2,492 million in cash from operations in the nine months, down from the year-ago quarter’s $2,733 million.

2018 Guidance

The company updated its 2018 guidance. Adjusted earnings are now projected to be $3.05-$3.15 per share compared with the previous guidance of $3.00-$3.20.

PSE&G’s operating earnings are now anticipated to be $1,055-$1,070 million compared with the previous guidance of $1,000-$1,030 million.

The company continues to expect PSEG Power operating earnings of $465-$500 million, compared to its previous projection of $485-$560 million.

Also, PSEG Enterprise/Other’s operating earnings expectations are now projected at $25 million, compared to its earlier guidance of $35 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -9.17% due to these changes.

VGM Scores

At this time, PSEG has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, PSEG has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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