NJR: A Resilient Utility Powering Growth Through Diversification and Strategic Capital - NJR Stock Research Report

## Executive Summary / Key Takeaways * Anchored Stability with Growth: New Jersey Resources (NJR) offers a compelling investment thesis rooted in its stable, regulated utility operations (NJNG), which are projected to contribute over 70% of fiscal 2025 Net Financial Earnings Per Share (NFEPS) excluding a one-time gain, complemented by strategic growth in clean energy and midstream assets. * Accelerated Utility Investments: NJNG's expanded SAVEGREEN energy efficiency program, now totaling $385.6 million through June 2027, and a recent $157 million base rate increase, provide near real-time returns and a robust capital expenditure plan, significantly derisking utility earnings. * Diversified Clean Energy Pipeline: Clean Energy Ventures (CEV) is strategically expanding its commercial solar portfolio, with 63 MW placed in service year-to-date and a 1 GW project pipeline, leveraging flexible contracts and geographic diversification to drive accretive returns. * Midstream Expansion & Regulatory Clarity: The Storage and Transportation (S&T) segment is advancing capacity enhancements at Leaf River, including a potential 4 Bcf expansion, and has reached a settlement in principle for the Adelphia Gateway rate case, signaling future fee-based revenue growth. * Strong Financial Foundation & Outlook: NJR raised the lower end of its fiscal 2025 NFEPS guidance to $3.20-$3.30 per share, exceeding its 7-9% long-term growth target, supported by robust operating cash flows ($460-$500 million projected for fiscal 2025) and a disciplined capital plan of $1.3-$1.6 billion for fiscal 2025-2026, all while maintaining a strong balance sheet. ## A Century of Energy: NJR's Foundation and Forward Strategy New Jersey Resources Corporation, founded in 1922, has built a century-long legacy as a diversified energy services holding company. Its core, New Jersey Natural Gas (NJNG), provides essential regulated natural gas utility services across a vibrant and economically robust region of New Jersey. This foundational business has consistently driven stability and growth, underpinned by a proactive approach to infrastructure investment and regulatory engagement. Over time, NJR has strategically diversified, expanding into wholesale energy services through Energy Services (ES), investing in midstream natural gas assets via Storage and Transportation (S&T), and embracing the clean energy transition through Clean Energy Ventures (CEV).

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\ This diversification is not merely opportunistic; it is a deliberate strategy to balance regulated stability with growth opportunities in evolving energy markets. NJR's approach is characterized by disciplined capital allocation, operational excellence, and a keen focus on customer affordability and reliability. The company's long-term vision positions it to capitalize on increasing energy demand, particularly in constrained markets, while actively participating in the decarbonization efforts. ### Competitive Landscape and Strategic Positioning NJR operates within a competitive yet largely regulated environment, facing both direct and indirect rivals. In its core natural gas distribution business, NJNG competes with other regional utilities like Dominion Energy (TICKER:D), NiSource (TICKER:NI), and Atmos Energy (TICKER:ATO). NJR's strength here lies in its deep regional focus within New Jersey's economically vibrant counties, fostering strong customer relationships and benefiting from a constructive regulatory framework. This localized expertise allows NJR to tailor services and programs, such as SAVEGREEN, which enhances customer loyalty and provides a qualitative edge in service responsiveness. While larger, multi-state utilities like Dominion and NiSource may benefit from greater economies of scale in broader operations, NJR's concentrated footprint allows for potentially superior operational execution within its service territory. NJR emphasizes that natural gas remains the cheapest way to heat homes in New Jersey, a critical competitive advantage in an affordability-focused market. In the midstream segment, S&T's assets, like Leaf River and Adelphia Gateway, are strategically positioned to serve constrained energy markets, highlighting the critical role of existing natural gas infrastructure. This positioning allows S&T to capture value from market demand for reliable transportation and storage, complementing the utility's stability. In the clean energy sector, CEV competes with large renewable developers like NextEra Energy (TICKER:NEE) and smaller, specialized solar firms. CEV's strategy of diversifying its project pipeline geographically, with a majority of investment opportunities outside New Jersey, mitigates over-reliance on any single market or policy regime. While NextEra leads in national scale and innovation speed in renewables, CEV's integrated approach, combining clean energy with traditional gas services, offers a balanced portfolio that can appeal to regions valuing energy diversity. NJR's contractual provisions in CEV projects are designed to preserve returns against cost increases, a crucial differentiator in a dynamic market. Indirectly, the rise of alternative energy providers and home energy management systems poses a challenge across the sector, but NJR's diversified portfolio and focus on integrated solutions aim to address these evolving customer preferences. ### Technological Differentiators and Innovation NJR's technological differentiation is primarily manifested through its operational advancements in utility infrastructure, its strategic deployment of clean energy solutions, and its pioneering efforts in decarbonization technologies. In its natural gas distribution segment, NJNG continuously invests in modernizing its system, leveraging advanced technologies for pipeline integrity management and infrastructure programs. This ensures safe and reliable service, a fundamental benefit that underpins customer satisfaction and operational efficiency. A key innovation is NJNG's adoption of distributed carbon capture technology at its headquarters, making it the first natural gas utility in New Jersey to install and operate such a system. This initiative, alongside fueling a portion of its fleet with renewable diesel, demonstrates a tangible commitment to emissions reduction and positions NJR as a leader in pursuing innovative clean energy solutions. While specific quantifiable performance metrics for these nascent technologies are not yet broadly disclosed, their stated goal is to drive a more sustainable energy future and reduce the company's carbon footprint, enhancing its environmental, social, and governance (ESG) profile. In Clean Energy Ventures, NJR's technological edge comes from its expertise in developing, constructing, and operating commercial solar installations. The company's ability to identify viable projects, navigate complex permitting and interconnection processes, and manage construction schedules efficiently allows it to bring new capacity online rapidly. Solar is recognized as one of the fastest and most efficient ways to add new generating capacity to the market. CEV's project pipeline, with over 1 gigawatt of opportunities, reflects a scalable approach to deploying proven solar technology. For investors, these technological and operational advancements contribute to NJR's competitive moat by ensuring service reliability, driving cost efficiencies in its utility operations, and positioning it at the forefront of emerging decarbonization trends, thereby supporting long-term growth and resilience in a changing energy landscape. ### Financial Performance and Operational Momentum NJR's financial performance in fiscal 2025 demonstrates the strength and resilience of its diversified business model. For the nine months ended June 30, 2025, consolidated net income surged by approximately $121.9 million year-over-year, reaching $320.56 million. This robust growth was primarily fueled by significant contributions from NJNG, CEV, and ES.

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\ NJNG, the cornerstone of NJR's operations, saw its Utility Firm Gross Margin increase by an impressive $119.2 million for the nine months ended June 30, 2025, driven by the new base rates effective November 21, 2024. This regulatory clarity, coupled with consistent customer growth (5,659 new customers added year-to-date), underscores the segment's predictable earnings power. The SAVEGREEN program, a key operational highlight, saw its 2025 capital projections raised by over 30% to $90-$95 million, representing a record investment. This program's accelerated cost recovery mechanism is crucial, eliminating regulatory lag and improving capital efficiency, directly translating into near real-time returns for shareholders.

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\ Clean Energy Ventures (CEV) delivered a substantial increase in net income, up $39.1 million for the nine months ended June 30, 2025. This was largely attributed to a $56.1 million gain from the strategic sale of its residential solar portfolio, "The Sunlight Advantage," for $132.5 million. This divestiture, completed on November 25, 2024, allowed CEV to recycle capital and sharpen its focus on commercial solar, where it has placed 63 MW into service year-to-date and boasts a robust 1 GW project pipeline. The segment's operating revenues for the nine months ended June 30, 2025, were $46.40 million. Energy Services (ES) showcased its ability to capitalize on market volatility, reporting strong performance during the winter season through its long option strategy. While operating revenues for the three months ended June 30, 2025, decreased by $23.6 million due to lower natural gas prices and volumes, the nine-month period saw a $64.6 million increase in operating revenues, driven by a 35% rise in natural gas prices. The segment's fee-based asset management agreements continue to provide stability. Storage and Transportation (S&T) also contributed positively, with net income increasing by $4.1 million for the nine months ended June 30, 2025, primarily due to higher hub services revenues at Leaf River. From a liquidity perspective, NJR maintains a strong financial position. Cash flows from operating activities increased by $22.3 million to $385.2 million for the nine months ended June 30, 2025, reflecting higher base rates and favorable working capital dynamics. The company's adjusted FFO to adjusted debt ratio is projected at a healthy 19-21% for fiscal 2025, supporting its investment-grade credit rating at NJNG. With $825 million in credit capacity and a well-laddered debt maturity profile, NJR has ample flexibility to fund its capital plan without relying on equity issuances.

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\ ### Outlook, Guidance, and Strategic Initiatives NJR's management is confident in its forward trajectory, raising the lower end of its fiscal 2025 NFEPS guidance by $0.05 to $3.20-$3.30 per share. This revised outlook surpasses the company's long-term 7-9% NFEPS growth target, reflecting strong operating performance and increased visibility into full-year results. Utility operations are expected to be the primary driver, contributing roughly 65% of full-year NFEPS, or over 70% when excluding the one-time gain from the residential solar sale, underscoring the stable, recurring nature of its core business. The capital plan for fiscal 2025-2026 is robust, ranging from $1.3 billion to $1.6 billion, aligning with the long-term growth objectives. Fiscal 2025 capital expenditures are now projected between $650 million and $770 million, an increase driven by better-than-expected deployment in the SAVEGREEN program. NJNG's capital expenditures are estimated at $375-$420 million for fiscal 2025, while CEV's solar-related investments are projected at $165-$220 million. S&T will see investments of $5-$15 million for Adelphia and $15-$20 million for Leaf River. Strategic initiatives are well underway across all segments. At NJNG, the recently approved $157 million base rate increase and the expanded $385.6 million SAVEGREEN program are pivotal. SAVEGREEN's accelerated cost recovery mechanism is a key differentiator, ensuring timely returns on energy efficiency investments that also reduce customer bills and emissions. CEV is focused on its commercial solar pipeline, with 131 MW scheduled for service in the next two years (representing $350 million in investment) and an additional 800 MW of opportunities. Management emphasizes flexibility in these projects, allowing NJR to advance only those with attractive risk-adjusted returns. In S&T, the Adelphia Gateway rate case settlement is expected by year-end 2025, and Leaf River is pursuing a potential 4 Bcf expansion, with an estimated capital cost of $175-$200 million, leveraging favorable market conditions for natural gas storage. ### Risks and Considerations Despite a strong outlook, NJR faces several pertinent risks. Regulatory and political uncertainty remains a key factor, particularly in New Jersey. The upcoming gubernatorial election in November 2025 could lead to a new energy master plan, potentially altering policy landscapes for natural gas and renewables. While NJNG has a history of constructive regulatory relationships, the risk of disallowance for environmental-related expenditures or adverse outcomes in rate proceedings is ever-present. Commodity market volatility, especially in natural gas, can impact Energy Services' performance and NJNG's cash flows, although NJNG's BGSS mechanism passes through costs to customers. The capital-intensive nature of NJR's businesses makes them sensitive to inflation and interest rate fluctuations, which can affect project costs and financing. For CEV, risks include the availability of regulatory incentives, federal tax credits (like ITCs, which are subject to changes from legislation like OBBBA), and the future market for Renewable Energy Certificates (RECs) and electricity prices. Supply chain disruptions and permitting delays for infrastructure and clean energy projects also pose operational challenges. However, management has proactively addressed some of these by diversifying CEV's pipeline geographically and using domestically sourced materials for NJNG's capital program, minimizing tariff exposure. ## Conclusion New Jersey Resources stands as a compelling investment, demonstrating a robust and balanced strategy that leverages the stability of its regulated natural gas utility while aggressively pursuing growth in clean energy and midstream infrastructure. The company's recent financial performance, marked by significant net income growth and a raised fiscal 2025 NFEPS guidance that exceeds its long-term targets, underscores its operational effectiveness and strategic foresight. NJR's commitment to disciplined capital allocation, exemplified by its expanded SAVEGREEN program and diversified clean energy pipeline, positions it for sustained value creation. The strategic divestiture of its residential solar portfolio has sharpened CEV's focus on higher-return commercial projects, while ongoing expansions at Leaf River and regulatory clarity for Adelphia Gateway promise future fee-based revenue streams. While regulatory and market risks persist, NJR's strong balance sheet, ample liquidity, and proactive risk management, including technological advancements in carbon capture, provide a solid foundation. For discerning investors, NJR offers a unique blend of defensive utility characteristics and attractive growth potential, driven by a clear strategic roadmap and a proven ability to execute in a dynamic energy landscape.