New Jersey Resources Has Growth at Gas Utility and Clean Energy Businesses

Strategist

Travis Miller

New Jersey Resources, or NJR, is one of the few U.S. utilities that has committed to maintaining and growing a diverse set of businesses from rate-regulated natural gas distribution to renewable energy investments. Management's investments in nonregulated energy businesses such as solar and natural gas midstream are paying off nicely for investors.

Constructive regulation and customer growth in New Jersey have produced steady earnings growth for NJR's regulated gas distribution business. But that legacy business is set to contribute only about 60% of earnings in the coming years if NJR's midstream and renewable energy businesses continue to grow rapidly.

We forecast 8% annual average consolidated earnings growth, in line with management's 7%-9% target. NJR has exceeded that growth recently due to three consecutive years of unusually large weather-related benefits.

We expect NJR to invest $700 million in new solar projects during the next three years Other growth opportunities could include hydrogen and renewable natural gas. These projects support clean energy goals in New Jersey and other states.

New Jersey's historically constructive regulation allows NJR to pay out a higher share of earnings and grow the dividend in line with the utility's earnings growth. Regulators approved a settlement in November 2021 that maintains its 9.6% allowed return on equity from NJR's 2016 and 2019 rate cases. NJR plans to request another rate increase soon.

Although NJR's allowed ROE is lower than other utilities, the utility enjoys other rate mechanisms for its safety and upgrade investments that support steady cash flow. We expect NJR's regulated distribution utility can grow earnings 6% annually based on 1% customer growth and about $450 million of annual infrastructure investments.

NJR's $367.5 million acquisition of the Leaf River (Mississippi) Energy Center in late 2019 paid off big in early 2021 when extreme cold weather allowed NJR to profit from its gas in storage. New Jersey Resources' energy services business has performed exceptionally well when gas markets turn volatile during extreme weather events, but we don't think that business has an economic moat.

Business Strategy & Outlook

NJR owns a difficult-to-replicate network of natural gas distribution and midstream assets, providing an essential energy source to customers. In exchange for a service territory monopoly, state regulators set rates for NJR's distribution utility at levels that aim to keep customer costs low while providing adequate returns for capital providers. This implicit contract between regulators and the utility should, in the long run, allow NJR to earn a small spread over its cost of capital.

NJR's rate-setting mechanisms and overall regulatory environment are mostly constructive, consistently leading to returns on invested capital modestly above the weighted average cost of capital. We have strong confidence that NJR's ROICs will remain at a healthy spread over WACC for the foreseeable future, leading us to assign the company a narrow moat. 

As with all regulated utilities, we think regulatory caps on revenue and returns preclude NJR from establishing a wide economic moat.

NJR derives one third of its earnings and cash flows from businesses that have few competitive advantages, particularly its energy services business and renewable energy investments. These businesses would have to grow significantly relative to the utility for us to consider re-evaluating NJR's economic moat.

We consider its midstream business, which contributes about 10% of earnings, to have efficient-scale competitive advantages consistent with a narrow economic moat.

Narrow

Economic Moat

New Jersey Resources

New Jersey Resources Corp. is a holding company. The firm provides safe and reliable natural gas and clean energy services, including transportation, distribution, asset management and home services. It operates through the following segments: Natural Gas Distribution, Clean Energy Ventures, Energy Services, Storage and Transportation, and Home Services and Other. The Natural Gas Distribution segment regulates natural gas services, off-system sales, capacity, and storage management operations. The Clean Energy Ventures segment consists of capital investments in clean energy projects. The Energy Services segment consists of unregulated wholesale and retail energy operations, as well as energy management services. The Storage and Transportation segment consists of investments in the natural gas storage and transportation market, such as natural gas storage and transportation facilities. The company was founded in 1981 and is headquartered in Wall, NJ.

Earnings data Q1 2024

Revenue

Cost of revenue

Gross profit

Operating expenses

SG&A

Other

Operating income

EBITDA

Net income

Earnings per share

Total assets

Current assets

Cash & equivalents

Receivables

Inventory

Non-current assets

Net PPE

Intangibles

Total liabilities

Current liabilities

Short term debt

Income tax payable

Non-current liabilities

Long-term debt

Total equity

Stockholders equity

Minority interest

Total liabilities & equity

Total debt

Net debt

Book value per share

Cash from operations

Funds from operations

Change in working capital

Cash from investing

Capital expenditure

Purchase/sale of investments

Purchase/sale of business

Other sources

Cash from financing

Change in stock

Change in debt

Cash dividends paid

Cash from other sources

Net change in cash

Free cash flow

New Jersey Resources Corp. is a holding company, which engages in the provision of regulated natural gas distribution services, transmission and storage services, and operates certain unregulated businesses. It operates through the following segments: Natural Gas Distribution, Clean Energy Ventures, Energy Services, Storage and Transportation, and Home Services and Other. The Natural Gas Distribution segment regulates natural gas services, off-system sales, capacity, and storage management operations. The Clean Energy Ventures segment consists of capital investments in clean energy projects. The Energy Services segment refers to the unregulated wholesale and retail energy operations, as well as energy management services. The Storage and Transportation segment is involved in the investments in the natural gas storage and transportation market, such as natural gas storage and transportation facilities. The company was founded in 1981 and is headquartered in Wall, NJ.

Cal-Maine Foods

Catalyst Pharmaceuticals

Defense is sometimes the best offense. In the spirit of March Madness and market volatility, it's time to get defensive as the banking crisis and market uncertainty fuel U.S. recession risks. As stocks fluctuate and the Fed suggests tighter credit conditions, investors are on edge with markets in flux following months of rate hikes.

Defense Is The Best Offense: 3 Stocks To Buy

Atmos Energy

MDU Resources Group

Spire

The near-term prospects of the Zacks Gas Distribution industry look challenging. Yet, systematic investment to strengthen infrastructure and efficiently supply natural gas to customers should drive the performance of ATO, MDU, NJR and SR.

4 Gas Distribution Stocks to Watch Despite Industry Headwinds

When I last wrote about NJR, I called the company a "HOLD" due to its valuation. The company, since that time, is in the red, validating the thesis. I'm updating my thesis for 2023 for New Jersey Resources - the company is a technically attractive compounder, especially in this environment.

New Jersey Resources: Underperformance Since December, Looking At 2023

NiSource

Omnicom Group

Prudential Financial

Regency Centers

As markets gyrate on inflationary pressure, invest in dividend stocks like Regency Centers (REG), Prudential Financial (PRU), Omnicom Group (OMC), NiSource (NI) & NewJersey Resources (NJR) for a steady income.

5 Top High-Yield Stocks to Sail Through a Choppy March

WALL, N.J.--(BUSINESS WIRE)--Today, New Jersey Natural Gas (NJNG), the principal subsidiary of New Jersey Resources (NYSE: NJR) notified the New Jersey Board of Public Utilities (BPU) it will implement a bill credit and lower the Basic Gas Supply Service (BGSS) rate for residential and small commercial customers, effective March 1, 2023. With this bill credit and rate decrease, the typical NJNG customer using 1,000 therms per year will see a savings of $129.48, or 8.1%, on their annual bill.

New Jersey Natural Gas Announces Bill Credit and Rate Decrease for Residential and Small Commercial Customers

Las Vegas Sands

Silicon Laboratories

NJR, LVS and SLAB made it to the Zacks Rank #1 (Strong Buy) momentum stocks list on February 7, 2023.

Best Momentum Stock to Buy for February 7th

New Jersey Resources Corporation (NYSE:NJR ) Q1 2023 Earnings Conference Call February 2, 2023 10:00 AM ET Company Participants Adam Prior - Director, IR Steve Westhoven - President, CEO Roberto Bel - SVP, CFO Amy Cradic - SVP, COO of Non-Utility Businesses, Strategy and External Affairs Conference Call Participants Chris Ellinghaus - Siebert Williams Shank Richard Sunderland - JPMorgan Gabe Moreen - Mizuho Jamieson Ward - Guggenheim Partners Travis Miller - Morningstar Operator Hello, everyone, and welcome to the New Jersey Resources Fiscal 2023 First Quarter Conference Call and Webcast. My name is Bruno, and I will be operating your call today.

New Jersey Resources Corporation (NJR) Q1 2023 Earnings Call Transcript

New Jersey Resources (NJR) delivered earnings and revenue surprises of 44.30% and 14.28%, respectively, for the quarter ended December 2022. Do the numbers hold clues to what lies ahead for the stock?

New Jersey Resources (NJR) Beats Q1 Earnings and Revenue Estimates

WALL, N.J.--( BUSINESS WIRE )--Today, New Jersey Resources Corporation (NYSE: NJR) reported results for the first quarter of fiscal 2023. Highlights include:

New Jersey Resources Reports Fiscal 2023 First-Quarter Results and Increases Net Financial Earnings Guidance for Fiscal 2023

New Jersey Resources (NJR) doesn't possess the right combination of the two key ingredients for a likely earnings beat in its upcoming report. Get prepared with the key expectations.

New Jersey Resources (NJR) Earnings Expected to Grow: What to Know Ahead of Next Week's Release

WALL, N.J.--( BUSINESS WIRE )--New Jersey Resources (NYSE: NJR) today hosted its 70th Annual Shareowners Meeting. At the virtual meeting, shareowners elected to NJR's board of directors Michael A. O'Sullivan for a two-year term that will expire in 2025 and re-elected Jane M. Kenny, Sharon C. Taylor and Stephen D. Westhoven for three-year terms that will expire in 2026.

New Jersey Resources Hosts 70th Annual Meeting; Shareowners Elect Four Directors

WALL, N.J.--( BUSINESS WIRE )--In conjunction with its 70th Annual Shareowners Meeting, New Jersey Resources (NYSE: NJR) released its fiscal 2022 Corporate Sustainability Report, highlighting progress on its sustainability agenda spanning environmental, social and governance initiatives — including emission reduction goals and decarbonization priorities — across the company.

New Jersey Resources Highlights Expanded Commitment to Environmental Stewardship and Community Engagement

WALL, N.J.--( BUSINESS WIRE )--New Jersey Resources (NYSE: NJR) invites investors, customers, members of the financial community and other interested parties to listen to a live webcast of its fiscal 2023 first quarter financial results on Thursday, February 2, 2023, at 10 a.m. ET.

New Jersey Resources Schedules Fiscal 2023 First Quarter Earnings Call

WALL, N.J.--( BUSINESS WIRE )--New Jersey Resources (NYSE: NJR) announced the following executive promotions that position the company to execute on its growth strategy and information technology (IT) priorities.

New Jersey Resources Announces Executive Promotions

Northwest Natural Gas

Sempra Energy

The near-term prospects of the Zacks Gas Distribution industry look challenging. Yet, systematic investment to strengthen infrastructure and efficiently supply natural gas to customers should drive the performance of SRE, ATO NJR and NWN.

4 Gas Distribution Stocks to Watch in a Challenging Industry

New Jersey Resources is an interesting business that a reader opened my eyes to about a year back. I haven't had time to give you my first view. I'm doing so now - the company is attractive compounder of value that's outperformed the market - but one that comes with a steep premium at times.

New Jersey Resources: A Compounder, But An Expensive One At This Time

WALL, N.J.--( BUSINESS WIRE )--For the fourth consecutive year, New Jersey Resources (NYSE: NJR) was named one of America's Most Responsible Companies by Newsweek in recognition of its excellence and accomplishments in corporate social responsibility.

New Jersey Resources Named One of America's Most Responsible Companies by Newsweek

New Jersey Resources Corporation (NYSE:NJR ) Q4 2022 Results Conference Call November 17, 2022 10:00 AM ET Company Participants Adam Prior - Director, IR Steve Westhoven - President, CEO Roberto Bel - SVP, CFO Pat Migliaccio - SVP, COO Amy Cradic - SVP, COO of Non-Utility Businesses, Strategy and External Affairs Conference Call Participants Gabe Moreen - Mizuho Michael Gaugler - Janney Montgomery Richard Sunderland - JPMorgan Sam Schwartz - Bank of America Operator Hello, everyone, and welcome to the New Jersey Resources Fiscal 2022 Fourth Quarter and Year-End Conference Call. My name is Emily, and I will be your conference call operator today.

New Jersey Resources Corporation (NJR) Q4 2022 Earnings Call Transcript

WALL, N.J.--( BUSINESS WIRE )--Today, New Jersey Resources Corporation (NYSE: NJR) reported results for the fourth quarter and year ended fiscal 2022. Highlights include:

New Jersey Resources Reports Fiscal 2022 Fourth-Quarter and Year End Results

WALL, N.J.--(BUSINESS WIRE)--New Jersey Resources (NYSE: NJR) today announced the appointment of Lori DelGiudice to the position of Senior Vice President of Human Resources (HR) effective November 7, 2022.

New Jersey Resources Names Lori DelGiudice Senior Vice President of Human Resources

WALL, N.J.--(BUSINESS WIRE)--The board of directors of New Jersey Resources (NYSE: NJR) today announced the unanimous election of Michael O'Sullivan, former senior vice president of Development at NextEra Energy Resources (NextEra), to the board.

Michael O'Sullivan Elected to the Board of Directors of New Jersey Resources

WALL, N.J.--(BUSINESS WIRE)--New Jersey Resources (NYSE: NJR) invites investors, customers, members of the financial community and other interested parties to listen to a live webcast of its fiscal 2022 year end financial results on Thursday, November 17, 2022, at 10 a.m.

New Jersey Resources Schedules Fiscal 2022 Year-End Earnings Call

AbbVie

Accenture Plc

American Electric Power Company

A. O. Smith

Amphenol

BancFirst

Black Hills

Brady Corporation

Brown & Brown

Calavo Growers

DTE Energy

Fifth Third Bancorp

First of Long Island

Gorman-Rupp

Honeywell

Ingredion

Lincoln Electric Hlds

Lockheed Martin

McDonald's

Middlesex Water

Microsoft

OGE Energy

Prosperity Bancshares

Philip Morris

Rockwell Automation

RPM International

Stepan

Standex

Tompkins Financial

Texas Instruments

U.S. Bancorp

Verizon

Waste Connections

Williams-Sonoma

Many of the dividend increases in September were modest. One exception was Accenture, which rewarded investors with a 15% boost. Utilities New Jersey Resources and OGE rewarded investors with boosts in the high single digits.

AbbVie, Rockwell Among 18 Companies To Announce Annual Dividend Increases In October

New Jersey Resources has been a strong long-term compounder, with diversification into non-regulated activities helping growth. With more debt in recent years, some points to monitor as this may impact future dividend growth rates.

New Jersey Resources: A Compounder With Some Downside Remaining

New Jersey Resources (NJR) has become technically an oversold stock now, which implies exhaustion of the heavy selling pressure on it. This, combined with strong agreement among Wall Street analysts in revising earnings estimates higher, indicates a potential trend reversal for the stock in the near term.

After Plunging 11.2% in 4 Weeks, Here's Why the Trend Might Reverse for New Jersey Resources (NJR)

News for New Jersey Resources Stock (NJR)