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Public Service Enterprise Group Inc. (PEG - Analyst Report), a regulated electric and natural gas distributor, is expected to release its second quarter 2012 results tomorrow before the bell. The Zacks Consensus Estimate for the second quarter of 2012 is 45 cents per share (year-over-year decrease of 28.6%) on revenues of $2,393 million (year-over-year decrease of 3.08%).

First-quarter 2012, a Synopsis

Public Service Enterprise’s first-quarter 2012 operating earnings per share (“EPS”) were 85 cents, far above the Zacks Consensus Estimate of 67 cents but in line with the year-ago figure.

In the first quarter of 2012, GAAP EPS was 97 cents, up from 91 cents per share in the year-ago period. The variance between GAAP and operating earnings was due to a 1 cent gain on each - nuclear decommissioning trust (NDT) Fund Related Activity and Lease Related Activity - as well as a mark-to market gain of 10 cents.

Revenue in the first quarter of 2012 was $2.88 billion, down from the year-ago figure of $3.35 billion. The top line was also lower than the Zacks Consensus Estimate by $355 million. Residential sales were 2,990 million Kwh while Commercial & Industrial sales were 6,751 million Kwh in the last quarter. Total sales were 9,834 million Kwh.

Total operating expenses in the quarter under review were $2.09 billion, down 16.3% year over year. Public Service Enterprise Group generated operating income of $783 million, down 8.5% year over year.

Read our full coverage on this earnings report: PEG Beats Bottom Line, Sales Trail

Guidance for 2012

During the first quarter of 2012, Public Service Enterprise had announced that it expects earnings in the range of $2.25 to $2.50 per share for full year 2012. It indicated that fossil operations helped in controlling costs and thereby mitigated the impact of a warmer winter, lower demand and a decline in gas prices. Going forward, on the basis of this operational excellence, it expects to generate good results.

Zacks Consensus                                                                                  

The analysts covered by Zacks expect Public Service Enterprise Group to post second-quarter 2012 earnings of 45 cents per share, lower than 59 cents delivered in the prior-year quarter. Currently, the Zacks Consensus Estimate ranges between earnings of 42 cents and 48 cents a share.

For 2012, the Zacks Consensus Estimate stood at $2.38 per share, lower than its prior-year earnings of $2.74 per share. The current Zacks Estimate ranges between $2.25 and $2.51 per share.

Estimate Revisions Trend

Agreement

We see a downward trend for estimates for the second quarter of 2012. Among the 10 estimates, only 1 estimate moved upward while 4 moved in the opposite direction over the last 30 days. In the last 7 days, none of the estimates moved upward while 2 moved in the opposite direction.

However, for full-year 2012, we see an upward trend for the estimates. One out of 13 estimates was revised upward while none moved in the opposite direction in the last 7 days. For the last 30 days, 3 estimates moved up for full year 2012 with 1 moving in the opposite direction.

The analysts seem to be more positive for full year 2012 in comparison to second quarter 2012.

Magnitude

The Zacks Consensus Estimate for the second quarter 2012 inched down by a penny to 45 cents over the last 30 days. For full year 2012 the consensus estimate remained static at $2.38 for the last 30 days.

Surprise History

With respect to earnings surprises, Public Service Enterprise Group has topped the Zacks Consensus Estimate over the last four quarters in the range of 1.22% to 26.87%. The average surprise over the last four quarter remained a positive 9.38%. The earnings beat in the last quarter was the highest at 26.87%.

Our Recommendation

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. Going forward, we believe that the low-cost nuclear fleet, assumed rate relief and added generating capacities will drive Public Service’s earnings growth. Public Service has been pursuing growth opportunities in the core U.S. market and increasing capital allocation in projects that provide good risk-adjusted returns.

However, we are concerned about the increasing cost of coal, higher pension & financial costs, and power-price volatility. Like its peer, Xcel Energy Inc. (XEL - Analyst Report), the company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

Based in Newark, New Jersey, Public Service Enterprise Group Inc. is a diversified utility holding company. Its operations are mostly located in the Northeastern and Mid-Atlantic parts of the U.S.  Public Service Enterprise principally operates through three key subsidiaries: Public Service Electric and Gas Company (PSE&G), PSEG Power LLC (PSEG Power) and PSEG Energy Holdings LLC (PSEG Energy).

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