On Tuesday, BofA Securities adjusted its outlook on PNM Resources (NYSE:PNM), a utility company operating in Texas and New Mexico. The firm's analyst revised the price target downward to $43.00 from the previous $44.00 while reaffirming a Buy rating on the stock.
The adjustment follows PNM Resources' latest earnings report for the fourth quarter of 2023, which led to changes in the earnings per share (EPS) estimates for the fiscal years 2024 through 2026.
The new EPS forecasts are set at $2.69, $2.80, and $3.01, modified from the earlier projections of $2.62, $2.72, and $3.04, respectively. This update incorporates the company's revised guidance, which now indicates an expected EPS growth of 6-7% from 2024 to 2028, an increase from the previous forecast of 5% growth from 2020 to 2027.
The analyst's report also includes expectations for the first quarter of 2024, predicting an EPS of $0.38, which is below the consensus estimate of $0.48. The reduced price objective to $43 reflects a change in the valuation multiple for PNM Resources' peer group, now standing at 13.6 times, compared to the prior multiple of 14.0 times.
The valuation also factors in a persistent 1.0 times premium to the Texas-New Mexico Power Company (TNMP) and its parent company, and a 1.0 times discount to the New Mexico utility operations. This pricing approach by BofA Securities aims to align PNM Resources' stock valuation with its industry counterparts while accounting for the company's specific financial outlook and market position.
InvestingPro Insights
As investors digest the revised outlook from BofA Securities on PNM Resources, it's crucial to consider current market data and analysis to fully understand the company's financial health and future prospects. According to InvestingPro data, PNM Resources has a market capitalization of $3.26 billion and is trading at a high price-to-earnings (P/E) ratio of 44.15 based on the last twelve months as of Q4 2023. This elevated multiple suggests investors are paying a premium for the company's earnings relative to its historical performance.
Despite a challenging environment, PNM Resources has demonstrated a commitment to shareholder returns, having raised its dividend for 12 consecutive years, with a current dividend yield of 4.14%. This is complemented by a consistent dividend growth rate of 5.44% over the last twelve months. Moreover, analysts predict profitability for the company this year, with net income expected to grow, which could provide some reassurance to investors concerned about the company's high earnings multiple and recent stock performance.
InvestingPro Tips reveal that PNM operates with a significant debt burden and that its short-term obligations exceed liquid assets, which may raise flags for risk-averse investors. However, the company has maintained dividend payments for 29 consecutive years, indicating a strong track record of financial discipline and shareholder value. With these insights, investors can better weigh the risks and rewards associated with PNM Resources. For further analysis and additional InvestingPro Tips on PNM Resources, visit https://www.investing.com/pro/PNM. Take advantage of our exclusive offer and use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, with 6 more tips available on InvestingPro to guide your investment decisions.
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