Public Service Enterprise Group Inc. (PEG) — This energy holding company is engaged in the transmission of electricity and the distribution of natural gas with operations in the Northeast and Mid-Atlantic. PEG stock is about as dull as it gets, but it should be bought by long-term investors seeking relative safety in an uncertain market and a higher-than-average yield. The company pays an annual dividend of $1.56 per share for a current yield of 3.8%.
S&P Capital IQ Equity Research said the company’s $12.1 billion five-year capital spending program is estimated to drive compound annual growth of 10% to 13% in the regulated rate base through 2016. Fifty-five percent of that spending is expected to be put toward transmission growth projects. Another 25% is expected to go toward solar and energy efficiency projects, so the majority of those costs should be recovered by contemporaneous means rather than rate recovery.
PEG stock is trading at about 14 times Capital IQ’s 2016 EPS estimate of $2.92, which its analysts note is a 17% discount to its peers.
Technically PEG stock is in a consolidation following a breakout in 2014 at about $34 that ran to the top of the current rectangle at $44. It traded in that rectangle for all of last year with support at about $39.
In December, PEG stock executed a deep “V” bottom bracketed by two buy signals from my proprietary indicator, the Collins-Bollinger Reversal (CBR), at $38. And last week, shares broke their 200-day moving average on higher-than-average volume.
PEG stock is slightly overbought at the current price, so I suggest buying shares on a pullback to $41. My 12-month target is $51 for a return of 24%, plus dividends, for a total return of 28%.