We have maintained our Neutral recommendation on Sempra Energy (SRE) on Mar 28, 2013 given its focus on infrastructure improvement. The company currently has a Zacks Rank #2 (Buy).
Why the Reiteration?
Sempra Energy appears to be well positioned given its stable earnings stream from its utility subsidiaries, which cater to more than 20 million customers of central and southern California. Indeed, Sempra’s fourth quarter top-line as well as bottom-line results surpassed the Zacks Consensus Estimates on the back of significant improvement in execution of its strategy and fulfillment of financial goals.
Sempra is implementing infrastructure improvement programs focused mainly on system reliability, smart grid technology and compliance with California’s renewable energy mandate. These projects and programs include Sunrise Powerlink electric transmission line, ongoing installations of smart meter, substation expansions and development of renewable power projects in the Pacific Southwest.
Other positives in Sempra Energy’s story include higher utility operating margins from regulatory rate hikes, contracts to construct and own approximately $1 billion of natural gas pipelines and completion of major regulatory filings for the Cameron LNG export project.
Moreover, Sempra Energy’s diversified basket of businesses insulates its operations to a large extent from regulatory rate risks. We believe the company presents a lower risk profile relative to its peers. Overall, these factors would help Sempra achieve its 6%–8% earnings growth target.
Despite the many positives running for Sempra, we remain concerned about the near-term trepidation in natural gas prices and some pending regulatory cases.
Other Stocks to Consider
Besides Sempra, other stocks worth considering are The Laclede Group, Inc. (LG), Chesapeake Utilities Corporation (CPK) and Atmos Energy Corporation (ATO). While The Laclede Group carries a Zacks Rank #1 (Strong Buy), Chesapeake Utilities and Atmos Energy hold a Zacks Rank #2 (Buy).
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