Sempra Energy Upped to Strong Buy on Growing Prospects

On Jan 14, 2016, Zacks Investment Research upgraded Sempra Energy SRE to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

Sempra Energy has been witnessing rising earnings estimates, thanks to its strong performance. The company reported positive earnings surprises in the last four quarters with an average beat of 15.97%. The long-term expected earnings growth rate for this stock is 8.40%.

Estimates for the fourth quarter as well as the full year have increased by 4.8% and 3.9% to $1.31 per share and $5.01 per share, respectively, over the last 90 days. For 2016, the estimates were revised higher over the same time frame, lifting the Zacks Consensus Estimate by 2.5% to $5.30 per share.

Based on Sempra Energy’s solid performance, management raised its 2015 adjusted earnings guidance to $4.95−$5.15 per share from its earlier projection of $4.60−$5.00 per share driven by revised repatriation plans (2015 and 2016 only).

Sempra Energy appears to be well positioned, given its stable earnings from utility subsidiaries. The company continues to invest systematically in its infrastructure development projects. Apart from Sempra Energy’s $19.1 billion capital expenditure plan over the 2015–2019 timeframe, an additional $7 billion to $8 billion has been apportioned for development opportunities, which would bolster its long-term outlook. The company has maintained its earnings per share CAGR of 11% from 2015 through 2019.

Steady focus on the expansion of its renewable capacity will enable the company to provide emission-free power to its customers. California is expected to generate 33% of its electricity from renewable sources within the next five years and Governor Jerry Brown's new energy goals call for boosting that level to 50% by 2030. Approximately $30 million has been allocated for the development of renewable projects in 2015.

As of Sep 30, 2015, Sempra Energy’s cash and cash equivalents were $697 million, compared with $570 million as of Dec 31, 2014. Cash flow from operating activities was $2,089 million in the first nine months of 2015, up from $1,661 million in the year-ago period.

Other Stocks to Consider

Apart from Sempra Energy, AGL Resources Inc. GAS, Atmos Energy Corporation ATO and Chesapeake Utilities Corporation CPK are some of the other favorably ranked stocks in the utility-gas distribution space. All three stocks hold a Zacks Rank #2 (Buy).

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