Morningstar | New Jersey Resources Closes Solid Fiscal 2018
We are reaffirming our $33 fair value estimate and narrow moat and stable moat trend ratings after New Jersey Resources reported net financial earnings per share of $2.74 for fiscal 2018, up from $1.73 last year. Results were slightly better than we forecast, but the outperformance did not have a material impact on our fair value estimate.We anticipated a jump in 2018 earnings due to the first-half outperformance at NJR Energy Services, which benefited from favorable energy markets and weather last winter. We don’t expect that weather benefit to recur, leading to a likely drop in 2019 earnings. Management initiated fiscal 2019 EPS guidance of $1.95-$2.05, in line with our estimate.
NJR’s distribution utility, New Jersey Natural Gas, remains the company's core earnings driver and continues to expand its customer base steadily. We expect NJNG will contribute more than half of consolidated earnings next year. Total regulated earnings, including the midstream business, should provide about two thirds of consolidated earnings, although that will depend on when its two major midstream projects, PennEast and Adelphia Gateway, go into service.
The energy market- and weather-sensitive Energy Services business remains a key source of earnings volatility, as it showed in 2018 with earnings tripling from 2017. Management has done a good job managing the business to avoid any huge losses, but unfavorable energy market or weather conditions could create earnings pressure.
NJR also announced the sale of its remaining 117-megawatt wind energy portfolio for $208.5 million, completing management’s plan to exit the business. The total proceeds, including a small wind farm sale earlier this year for $18.5 million, are in line with our valuation for those assets and have no impact on our fair value estimate.
New Jersey Resources is an energy services holding company whose principal business is the distribution of natural gas through a regulated utility, providing other retail and wholesale energy services to customers and investing in clean energy projects and midstream assets. The company's segments are: Natural Gas Distribution, which consists of regulated natural gas services, off-system sales, capacity and storage management operations; Clean Energy Ventures, which consists of capital investments in clean energy projects; Energy Services, which consists of unregulated wholesale and retail energy operations; and Midstream, which consists of investments in the midstream natural gas market.
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