UPDATE: Goldman Sachs Sees Public Service Enterprise Group (PEG) as 'Under-Appreciated'; Analyst Raises Rating to 'Buy'
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(Updated - October 17, 2016 8:44 AM EDT)
Goldman Sachs upgraded Public Service Enterprise Group Inc. (NYSE: PEG) from Neutral to Buy with a price target of $47, implying upside of 15%. Analyst Michael Lapides thinks growth could surprise to the upside, and he sees improving FCF.
"We upgrade PEG from Neutral to Buy on (1) above consensus estimates, on our expectation for capital spending, rate base and earnings growth at its regulated subsidiary (PSE&G) to surprise positively, (2) potential upside and improving FCF at its non-regulated business (PSEG Power) and (3) valuation," said Lapides. "We raise our 2016-19 EPS estimates from $2.82/2.89/2.93/3.00 to $2.83/2.98/3.07/3.06 –seeing upside to the company’s expected electric transmission and gas distribution regulated rate base/earnings growth, while also benefitting from retiring two largely un-economic coal plants at PSEG Power."
Discussing catalysts, the analyst said, "...even after incorporating a 2017 rate case, we forecast an 8% EPS CAGR from 2015-2019, higher than most regulated utilities, partially driven by higher assumed investment in the electric/gas networks in NJ – we expect PEG to raise multi-year spend and rate base views in the coming months, likely at its 1Q2017 analyst day."
Lapides added, "Capital spending should start to moderate by 2018, improving FCF at PSEG Power – and as detailed by PJM’s own market monitor, the eastern portions of PJM could see the greatest improvement in fundamentals in next year’s capacity auction, after a weak auction in 2016 that weighs on 2019 earnings."
Shares of Public Service Enterprise Group Inc. closed at $40.90 yesterday.
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