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Nicholas Kitonyi
Nicholas Kitonyi
Articles (404)  | Author's Website |

Is New Jersey Resources' Pullback an Opportunity to Buy?

The stock fell 6% after reporting earnings

November 30, 2020 | About:

Shares of energy services company New Jersey Resources Corp. (NYSE:NJR) fell more than 6% on Monday morning following the announcement of its fourth-quarter and fiscal 2020 results.

Shares of the company have experienced high volatility this year and are now down 22% year to date. New Jersey Resources' shares have, however, bounced back over the last two months to trim this year's decline by nearly 30%. The stock had plunged more than 40% in late September.

Today's pullback has put a halt on its recovery, but there is still a chance it will continue after a reaction to the disappointing earnings report fades off. Shares of the company look slightly overvalued at a trailing price-earnings ratio of about 18.90 based on the Peter Lynch fair valuation of 15.

Highlights from the recent quarterly results

For the fourth quarter, New Jersey Resources posted earnings of 57 cents per share, which were in line with analysts' estimates and represented a 96.55% increase from earnings of 29 cents per share reported in the prior-year quarter.

The company's top line fell 16.5% to $400 million, which was significantly below the consensus analyst estimate of $701.5 million.

Overall, the utility service provider's earnings per share for the full year came in at $2.07 per share compared to $1.96 in 2019. Revenue dropped from about $2.59 billion to about $1.95 billion.

In general, the company's bottom line improved on a year-over-year basis, but its top line appears to be struggling amid the adverse effects of the Covid-19 pandemic. This situation could change in the coming quarters if normal business operations return by next year.

New Jersey Resources has issued earnings per share guidance of $1.55 to $1.65 for fiscal 2021.

The company is targeting the rapidly growing solar energy market, which it will invest $850 million in over a four-year period. This is partly one of the reasons why the bottom line is projected to decline next year.

Nonetheless, shareholders will be excited by the company's dividend growth prospects of 6% to 10% per year. In the most recent earnings results, it increased the annual dividend by 6.4% to $1.33, at a payout of just under 70%. Its forward annual dividend yield now stands at 3.64%.

Valuation

At the current price-earnings ratio of 18.90, shares of New Jersey Resources appear to be fairly valued compared to industry peers. South Jersey Industries Inc. (NYSE:SJI) trades at a trailing price-earnings ratio of 17.63 while Vegas-based Southwest Gas Holdings Inc.'s (NYSE:SWX) equivalent is 17.05.

The company is, however, making some key investments in the solar energy market, which could yield long-term growth. Its forward annual dividend yield of 3.64% is slightly better than Southwest Gas' 3.42%, but significantly lower than South Jersey Industries' 5.08%.

In summary, it might take some time for the company to net investors significant capital gains. However, its promise of a 6% to 10% long-term annual dividend growth could be a good trade-off in the short term.

Disclosure: No positions in the stocks mentioned.

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About the author:

Nicholas Kitonyi
Nicholas is the founder of CAGR Value. He is a financial analyst with extensive experience in investment research and stock market analysis. His analysis has been featured on several research sites.

Nicholas has solid knowledge of both U.S. and European markets. His investment style is focused on undervalued plays and growth stocks. Nicholas classifies himself as a swing trader and likes to trade GBP/USD, gold and FTSE 100, among other liquid instruments.

Visit Nicholas Kitonyi's Website


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