2018 estimate reflects the continued expansion of the

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2018 estimate reflects the continued expansion of the company’s electric and gas transmission and distribution facilities, as well as its favorable natural gas supply position. In addition, the company is beginning to benefit from a turnaround in nonregulated wholesale power prices and lower energy supply costs as well as from declining O&M expenses. At the same time, our revised estimate assumes some pressure from rising depreciation and higher property taxes, both related to the infrastructure buildout program, as well as from customer conservation efforts. FINANCIAL STRENGTH & DIVIDEND Our financial strength rating on Public Service Enterprise is Medium-High, the second-highest rank on our five-point scale. The company’s bond ratings are investment grade. Public Service remains focused on balance sheet improvement, growth in cash flow, and strong cost controls. While total debt has increased as a result of its infrastructure buildout program, the overall cost of financing has declined due to refinancing activity and lower interest rates. The company ended 3Q17 with a relatively low long-term debt/capital ratio of 48%, well below the sector average of 55%. EBITDA covered interest expense by a factor of 6.8
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M ARKET D IGEST - 16 - in 3Q17, slightly below the industry average near 7.0. The 3Q17 profit margin was 14.4%, compared to 13.9% in 3Q16. Operating cash flow fell to $2.734 billion in 3Q17 from $2.761 billion in 3Q16. Increasing shareholder value remains a priority, and the company has paid dividends without interruption since 1907. The annualized dividend is currently $1.72 per share, for a yield of about 3.4%. Our dividend estimates are $1.72 for 2017 and $1.78 for 2018. We expect dividend increases of close to 5% annually over the next 3-4 years. MANAGEMENT & RISKS Ralph Izzo was elected chairman and CEO of Public Service Enterprise Group in April 2007. He became the company’s president and chief operating officer and a member of the board of directors in October 2006. He previously served as president and chief operating officer of PSE&G. On September 23, 2015, Daniel J. Cregg, formerly VP of Finance for PSE&G, was named executive vice president and CFO. During his 24-year career with the company, Mr. Cregg has held senior financial positions at both PSE&G and PSEG Power. Overall, we believe that Public Service Enterprise is committed to electric and gas service expansion strategies in its regulated service territory and that it is keeping O&M expenses in check. In addition, we think the company’s platform for growth is solid, and we are confident in management’s ability to provide shareholders with increased value over the long term. The company’s regulated utility operations are subject to cooler-than-normal conditions during the summer air- conditioning season, and the gas distribution business faces the possibility of warmer-than-normal temperatures during the winter heating season. Although utility regulation in New Jersey is generally balanced, there is always the possibility that regulators will lower the company’s allowed return on common equity. The company’s earnings could also come under pressure in the event of
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