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We have maintained our Neutral recommendation on Public Service Enterprise Group Inc. (PEG - Analyst Report). The company currently has a Zacks Rank #3 (Hold).

Why the Reiteration?

Despite the adverse influence of low energy prices and Superstorm Sandy, earnings for Public Service Enterprise surpassed the Zacks Consensus Estimates in the fourth quarter of 2012. This demonstrates management’s initiatives and measures taken up to improve financial stability and reduce the overall risk profile of the company.

Moreover, Public Service Enterprise Group’s solid portfolio of regulated and non-regulated utility assets helps it in offering a stable earnings base and substantial long-term growth potential. Going forward, we expect the low-cost nuclear fleet, assumed rate relief and added generating capacities to drive Public Service’s earnings growth.

Initiatives taken by the company to improve earnings and offset pressure on margins due to low commodity prices include opportunistically monetizing assets that are no longer a strategic fit, significantly hedging future generation business and paying down debt.

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.  Over the next 10 years, the company intends to invest $3.9 billion in order to protect and strengthen its electric and gas systems against increasingly frequent severe weather conditions. These investments will help the company in increasing the pace of earnings growth. Moreover, it will also help in offsetting the decline in earnings in the merchant power segment.

However, we remain concerned about the increasing cost of coal, higher pension & financial costs, power-price volatility and the extent of restoration costs for Sandy.

Other Stocks to Consider

Other stocks to consider are Otter Tail Corporation (OTTR - Snapshot Report), The AES Corporation (AES - Analyst Report) and DTE Energy Company (DTE - Analyst Report). While Otter Tail carries a Zacks Rank #1 (Strong Buy), AES Corp. and DTE Energy hold a Zacks Rank #2 (Buy).

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