On Thursday, Barclays initiated coverage of PNM Resources (NYSE:PNM), a company specializing in electric generation, transmission, and distribution in New Mexico and Texas. The firm has given the stock an Overweight rating and set a price target of $40.00.
PNM Resources has been in the spotlight after the recent termination of its merger agreement with Avangrid (NYSE:AGR). Barclays highlighted PNM's focus on expanding its asset base, which is expected to grow at a compound annual growth rate (CAGR) of 10%. Additionally, the company is projected to follow through on its long-term earnings per share (EPS) growth CAGR of 6-7% from 2024 to 2028.
The company's Texas jurisdiction has been noted for its constructive regulatory environment, while the New Mexico jurisdiction has had a more challenging history. Despite this, PNM is advancing its rate base in both the Texas-New Mexico Power (TNMP) and Federal Energy Regulatory Commission (FERC) segments, which currently account for over half of the company's composition, up from approximately 30% in 2018.
Barclays pointed out that PNM Resources is trading at a roughly 7% price-to-earnings (P/E) discount compared to its small-cap electric peers. However, the firm believes that PNM's high-quality portfolio and above-average economic growth in its territories, coupled with an anticipated improvement in relations with the New Mexico Public Regulation Commission (NM PRC), could enhance the company's valuation.
In summary, Barclays sees PNM Resources as a company with scarcity value among small-cap, Pacific Northwest peers and predicts that the stock could trade at a multiple in line with its peers throughout 2024.
InvestingPro Insights
In light of Barclays' recent initiation of coverage on PNM Resources (NYSE:PNM), additional insights from InvestingPro provide a deeper look into the company's financial health and market performance. PNM Resources operates with a significant debt burden, which is an important consideration for investors assessing the risk profile of the company. However, this concern is tempered by the company's track record of raising its dividend for 12 consecutive years, signaling a commitment to returning value to shareholders.
InvestingPro data indicates that PNM Resources has a market capitalization of $3.15 billion and is trading at a high earnings multiple, with a P/E ratio of 35.49. This is further underscored by the adjusted P/E ratio for the last twelve months as of Q4 2023, which stands at 41.85. Despite the high valuation, analysts predict that the company will be profitable this year, with net income expected to grow.
Moreover, PNM Resources is currently trading near its 52-week low, presenting a potential entry point for investors. The dividend yield as of the latest data point is 4.19%, which is attractive for income-focused investors, especially considering that the company has maintained dividend payments for 29 consecutive years.
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