Public Service Enterprise (NYSE: PEG) has grown dramatically this year. Let's take a look at the stock and based upon what is happening presently in the economy and with the company I will attempt to give my opinion on this question: "Why should you buy Public Service Enterprise?"
Forbes Earning Preview
Analysts expected a drop in Public Service's earnings this quarter by about 23.7% but it dropped further than expected missing estimates by $0.02. Prior to this quarter, revenue fell an average of 5.9% year over year for the last four quarters. When it reported earnings it also reported missed revenues ($2.46 billion a year ago to $2.38 billion this year). These poor numbers continue to reflect the economic uncertainty for the gas and energy fields. With reports like this, why would anyone invest in the stock? The stock continues to grow but earnings and revenue continue to decrease.
Logic here does not seem to have any influence for a growth investor, but since this is a defensive stock, I believe we can find some common answers. Grouped together with the other defensive utility stocks, PEG finds that its dividend is the alternative to low producing treasuries. Insider Money wrote an article recently on Seeking Alpha stating reasons the company is a good buy.
"The annual dividend yield for the shares is 4.3 percent. I like this stock as a "better-than-treasury" equity--allowing for decent capital preservation and returns."
This is the reason it continues to grow even though its performance has been less than stellar. Money is flocking into the defensive dividend oriented stocks for better returns. The market is ripe for this type of investing (and has been) and I do not see a change in the air just yet.
Technically Speaking
Using the 50 day MA as a support line, Public Service Enterprise has a very strong bullish trend in place. The last two months are very strong and that can be seen in the Bollinger Bands. It used the middle band as a support line for a time and this is very strong. Using the RSI and MACD indicators, I am looking for any sign I can see of weakness in the trend or a possible reversal coming. The RSI barely touches below '50' on the dips and this is a typical strong pattern. I do not see any weakness from there. The MACD is also not showing any signs of weakness as of yet. So far it looks like this trend will stay in place for a bit longer.
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Will Solar Power Help?
Back in 2009, the New Jersey Board of Public Utilities (BPU) decided to invest $515M in 80 megawatts of solar projects, doubling the state's solar capacity and creating green jobs. There are two parts to this program. Small solar units would be installed on about 200,000 utility poles that could generate about 200 watts each. The second segment will focus on centralized solar, with PSE&G developing solar gardens and roof-top installations on facilities it owns and also at third-party sites.
Public Service is also expanding its utility's solar power programs by $883 million and involved in a 6-acre solar farm project being built on a long-vacated site that once held a gas manufacturing plant and has since been remediated. PSE&G Chairman Ralph Izzo said reclaiming brownfields and landfills has been a centerpiece of the company's solar-energy efforts. But all this will only bring the entire solar energy usage to 2% of the utility company's total output. Solar power will have little affect upon the company as a whole. The whole solar farm project will only be able to generate enough electricity for 1000 homes.
The stock is slow moving and most analysts have it as a hold, not as a buy. It is a good company to own with a dividend yield of 4.3%, and shares expect a positive twelve month total return. Should you as an investor own this stock right now? Although the market sentiment favors owning these stocks and will continue, I would advise investors to research other utility stocks with similar dividend returns before I would advise just investing in this one. I am not happy with the shrinking earnings and revenue at this point.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
