Will This Downgrade Hurt Public Service Enterprise (PEG) Stock Today?

Story updated at 10 a.m. to reflect market activity.

NEW YORK (TheStreet) -- Public Service Enterprise (PEG) was downgraded to "sector perform" from "outperform" by RBC Capital Friday.

Public Service ZEnterprise fell -1.7% to $39.78 in morning trading.

RBC analysts said the downgrade was due to a valuation call based on the new $39 price target for the stock.

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Separaetly, TheStreet Ratings team rates PUBLIC SERVICE ENTRP GRP INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate PUBLIC SERVICE ENTRP GRP INC (PEG) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its good cash flow from operations, largely solid financial position with reasonable debt levels by most measures and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Net operating cash flow has significantly increased by 51.89% to $723.00 million when compared to the same quarter last year. In addition, PUBLIC SERVICE ENTRP GRP INC has also vastly surpassed the industry average cash flow growth rate of -5.36%.
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • The debt-to-equity ratio is somewhat low, currently at 0.75, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Despite the fact that PEG's debt-to-equity ratio is low, the quick ratio, which is currently 0.55, displays a potential problem in covering short-term cash needs.
  • PUBLIC SERVICE ENTRP GRP INC's earnings per share declined by 11.4% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, PUBLIC SERVICE ENTRP GRP INC reported lower earnings of $2.45 versus $2.51 in the prior year. This year, the market expects an improvement in earnings ($2.68 versus $2.45).
  • PEG, with its decline in revenue, slightly underperformed the industry average of 1.8%. Since the same quarter one year prior, revenues slightly dropped by 3.6%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
  • You can view the full analysis from the report here: PEG Ratings Report

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Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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