PSEG Stock Rides on Investments Despite Weak Financial Position

Public Service Enterprise Group, Inc. PEG or PSEG's focus on renewable generation expansion is likely to bolster its footprint in the clean energy market. To enhance customer reliability, the company makes consistent investments in its infrastructure, strengthening its transmission and distribution system's resilience.

However, this Zacks Rank #3 (Hold) company faces risks like an unfavorable financial position and expenditure to remediate every manufactured gas plant (MGP) site, which acts as a headwind.

PEG's Tailwinds

PSEG has a capital investment plan of $18-$21 billion for 2024-2028 to constantly upgrade its infrastructure and expand its renewable generation portfolio. Its solid capital investment plan is estimated to bring in compounded annual rate base growth of 6-7.5% between 2024 and 2028.

In the clean energy space, the company is investing significantly in solar initiatives in utility-owned solar photovoltaic (PV) grid-connected systems. As of Dec. 31, 2023, the PSE&G segment owned 158 MW DC of installed PV solar capacity throughout New Jersey.

PSEG is also expanding its footprint in the wind energy market. It is essential to note that the company has been granted various onshore transmission contracts by the New Jersey Board of Public Utilities to link customers with the offshore wind farms that are currently under development.

Headwinds Faced by PSEG

PSEG's segment, PSE&G, has been collaborating with the New Jersey Department of Environmental Protection to assess and remediate environmental conditions at its former MGP sites. As of June 30, 2024, 38 sites require remedial action, and PSE&G estimates costs of $196-$215 million to complete all sites. Such an expenditure might hurt PSEG's operating results.

As of June 30, 2024, the company owed $18.42 billion in long-term debt. Its cash balance of $0.11 billion at the end of the second quarter fell short of its long-term debt levels and the current debt value of $2.98 billion. This shows that PSEG has a weak solvency position.

PEG Stock Price Movement

In the past six months, shares of PEG have risen 28.7% compared with the industry's growth of 20.8%.

Image Source: Zacks Investment Research

Stocks to Consider

Some better-ranked stocks from the same industry are DTE Energy Company DTE, The AES Corporation AES and NiSource Inc. NI, each carrying a Zacks Rank #2 (Buy) at present.

DTE Energy's long-term (three to five years) earnings growth rate is 8.1%. The company delivered an average earnings surprise of 0.77% in the last four quarters.

AES delivered an average earnings surprise of 19.18% in the last four quarters. The Zacks Consensus Estimate for AES' 2024 sales suggests an improvement of 3.6% from the prior-year reported figure.

NiSource's long-term earnings growth rate is 6%. The company delivered an average earnings surprise of 20.64% in the last four quarters.

To read this article on Zacks.com click here.