South Jersey Industries Has High Potential But With 'Meaningful' Risk

Morgan Stanley’s Stephen C. Byrd believes that while South Jersey Industries Inc SJI's recent stock outperformance, risks associated with its non-utility businesses and a major project have led to a balanced risk-reward.

Byrd initiated coverage of the company with an Equal-Weight rating and price target of $32.

EPS Potential

“We see strong EPS growth potential at the utility, but two somewhat offsetting dynamics drive our EW rating: (1) execution risk at the PennEast pipeline and (2) greater dependency on earnings & growth at non-utility businesses, which have higher risk and should merit lower multiples,” the analyst mentioned.

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South Jersey Industries has a robust, high growth gas utility business, with a robust capex for 2016–2020, timely capital recovery and above average customer growth. The company expects over $1 billion in investment at its South Jersey Gas utility during 2016–2020.

“While growth at the utility is strong, SJI has a higher percentage of earnings derived from non-utility businesses than do peers. That said, we like that the non-utility business is moving toward safer, more contracted revenue streams,” Byrd stated.

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