Analyst Actions: Public Svc Ent Upgraded To Neutral, But Target Lowered Slightly at Credit Suisse; Shrs Edge Up


Credit Suisse says: "Closing the Valuation Gap after RPM; UPGRADING to NEUTRAL (from Underperform); Revising Ests & TP to $31.50 (from $32.00)."

Our Take: "We are raising our rating on PEG to Neutral from Underperform within our relative to peer group recommendation system. The combination of an uplift in PEG's market conditions and deterioration for peers has effectively collapsed the valuation discrepancy we previously saw in PEG vs the group. We are updating our target price on PEG to $31.50 (from $32) built from our sum-of-the-parts methodology. We are revising our 2013/2014/2015 EPS estimates to $2.47/$2.38/$2.30 (from $2.48/$2.36/$2.27) respectively.

Credit Suisse thinks investors can find comfort in PEG's investment story through -

Utility earnings growth: "PSEG has a number of investment initiatives aimed at meeting NJ State energy policy goals (solar) and system hardening at both the transmission and distribution levels that are consistent with the State's goals of enhancing system performance. With a solar settlement recently reached and the transmission investments highly probable under FERC jurisdiction, we see much of this capex program likely to get done (we use 2/3 of the proposed distribution capex)."

Power earnings visibility: "Power's business model has been rooted in a hedging program underpinned by the 3 year rolling energy auction program ( BGS ) in New Jersey that effectively layers in a long span of power prices into each year's hedge position, meaning realized prices are generally slower to increase or decrease. Balancing the hedging program with firmer capacity values and a diverse generation fleet (the CCGTs help in a low gas world), we see Power reaching a reasonably stable earnings base where utility growth can drive the story in the out years."

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

Copyright (C) 2014 All rights reserved. Unauthorized reproduction is strictly prohibited.

This article appears in: Investing , Commodities

Referenced Stocks: BGS

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