Why Public Service Enterprise Is A 'Buy': Analyst Highlights Revenue Decoupling And Strong Rate Base Growth

Mizuho analyst Anthony Crowdell reiterated a Buy rating on the shares of Public Service Enterprise Group Inc PEG and raised the price target from $60 to $65.

The PSE&G utility benefits from revenue decoupling, strong rate base growth of 6.0-7.5%, a robust capital program over the decade, FERC RTO adders +50bps, its historical ability to settle rate cases, incentive opportunities, and the list continues, said the analyst.

Often overlooked is the nuclear business, which the analyst believes supports EPS growth toward the higher end of management's 5-7% EPS CAGR, serving as an added bonus to an already premium utility.

Merchant nuclear plants benefit when commodity prices soar, because power prices are predominantly governed by a market heat rate and local natural gas prices, noted the analyst.

The analyst observed that the yellowcake (nuclear fuel) is typically procured through long duration contracts, fuel prices for nuclear plants are inherently a fixed cost.

While the analyst does not expect natural gas price spikes to impact merchant EBITDA in 2023 due to their 95% hedged generation in place, there is a likely EBITDA expansion from $484 million in 2024 to $586 million in 2026.

The analyst views the company as a best-in-class utility operating in a premium jurisdiction with the merchant nuclear and Basic Gas Supply Service (BGSS) business as an added bonus.

Price Action: PEG shares are trading higher by 0.75% at $61.64 on the last check Tuesday.