The Zacks Analyst Blog Highlights: U.S. Bancorp, Wells Fargo, Sempra Energy, Edison International and PG&E

Zacks

For Immediate Release

Chicago, IL – June 20, 2012 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include U.S. Bancorp (USB), Wells Fargo & Company (WFC), Sempra Energy (SRE), Edison International (EIX) and PG&E Corporation (PCG).

 

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Here are highlights from Tuesday’s Analyst Blog:

U.S. Bancorp Down to Neutral

 

We are downgrading our recommendation on U.S. Bancorp (USB) to Neutral from Outperform based on a stretched operating environment which is likely to temper its growth momentum in the quarters ahead.

While U.S. Bancorp has a solid franchise and diverse revenue stream, we believe that a tepid economic recovery, regulatory issues along with the expected continued low interest rate environment are projected to limit the stock’s upside potential in the upcoming quarters.

A sluggish economy that adversely affected consumer and business spending has impacted a number of fee-based categories of U.S. Bancorp over the last several quarters. Though we expect the fee-based category to improve over time with a step-up in the economy, we think that the progress will be tardy with the economy recovering sluggishly.

U.S. Bancorp is expected to experience a growth in loans in 2012. But given the company’s cash position and the current low interest rate environment, which is anticipated to continue in the next several quarters, we foresee net interest margins being under pressure going forward.

Moreover, as a result of the latest regulatory reform, we expect the company to be subject to both top- and bottom-line headwinds. Stricter capital requirements are also likely limit the company’s flexibility with respect to business investments.

Yet, U.S. Bancorp has weathered the financial crisis well and remains one of the most profitable large-cap banks in the industry. In April, U.S. Bancorp reported first-quarter 2012 earnings of 67 cents per share, beating the Zacks Consensus Estimate by 3 cents. Results were driven by year-over-year growth in revenue, supported by increases in net interest income as well as fee-based revenue, and reduced credit costs.

U.S. Bancorp’s strong retail banking franchise and leadership in payment processing should continue to create growth opportunities. The company is also focused on expanding its business through acquisitions.

U.S. Bancorp has a disciplined approach to capital management and capital redeployment remains a top priority. The stress test clearance along with the capital redeployment plans justifies the company’s solid capital position.

After receiving the approval from the Federal Reserve, the company has hiked its dividend by 56% and announced a 100 million-share repurchase authorization. Such shareholder-friendly approach inspires investors’ confidence in the stock.

Moreover, U.S. Bancorp is experiencing improvement in its credit quality with a drop in nonperforming assets, charge-offs and provisions for loan losses.

Therefore, the risk-reward profile of U.S. Bancorp seems somewhat balanced and we have assigned a Neutral recommendation on the stock. Additionally, U.S. Bancorp shares currently retain the Zacks #3 Rank, which translates to a short-term Hold rating. One of its closest peers, Wells Fargo & Company (WFC) also retains a Zacks #3 Rank.

 

Sempra’s Sunrise Powerlink On Line

 

San Diego Gas & Electric (“SDG&E”), a subsidiary of Sempra Energy (SRE) has finally completed the construction of its $1.9 billion Sunrise Powerlink project and initiated operations at the site. The project establishes a transmission line connecting San Diego to the Imperial Valley, a key renewable-rich region in California.

The 500,000-volt transmission line consists of more than 110 miles of overhead 500kV transmission towers and 230kV conductors. It also consists of 6.2 miles of underground 230kV cable and a 40-acre, 500kV transmission substation that will help in reducing the use of energy by homes and businesses.

The $1.9 billion project took one and a half years to complete and involved both overhead and underground technology processes. It also marked the end of a five-year environmental review and permitting process.

Overall, the project spanned 4.7 million work hours. The project utilized 13,200 tons of steel. It has 438 tower foundations. Due to environmental reasons, 75% of the tower structures had to be installed using helicopters. It took more than 28,000 flight hours to complete the aerial construction.

Sunrise Powerlink involved extensive regulatory review and is considered to be the most comprehensive study of a proposed transmission power line in state history. During the initial stages, the project will be able to transmit 800 megawatts of power. Eventually, it will carry 1,000 megawatts of power sufficient to serve 650,000 homes.

The project has been completed at a very important time. Recently, the company had announced the closure of the two-unit San Onofre nuclear plant at the end of August. The project will help in maintaining electric supply during the summer and in the absence of power generation from the San Onofre Nuclear Generating Station.

Sunrise Powerlink is a profitable as well as an environment friendly project. The project will soon begin delivering a significant amount of wind and solar power to San Diego. Over the past three years, SDG&E has signed eight renewable agreements for more than 1,000 MW of solar and wind power from projects in Imperial County. The green energy from these projects will be sent out through the Sunrise Powerlink.

During its construction period, the project created jobs in the Imperial Valley region, which has suffered a high rate of unemployment over the years. The development of the regions’ abundant renewable energy resources, it enables preservation of natural resources and native habitat.

Mainly, it will be a major contributor in achieving the company’s goal of generating 33% of energy from renewable sources by 2020. In 2011, the company had generated more than 20% of its energy from renewable resources.

Overall, from the company’s point of view, we believe that the company has a lower risk profile in comparison to its peers. Its diversified nature of businesses protects its operations to a significant degree from regulatory rate risks.

Its stable utility earnings, steady progress at its LNG terminals, renewable power projects in the Pacific Southwest, the completion of its Sunrise Powerlink transmission line and ongoing smart meter installations act as key growth drivers. However, we are concerned due to  lack of any near-term positive triggers, along with  trepidation in natural gas prices and pending regulatory cases.

Like its peers Edison International (EIX) and PG&E Corporation (PCG), the company retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

 

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Read the analyst report on USB

Read the analyst report on WFC

Read the analyst report on SRE

Read the analyst report on EIX

Read the analyst report on PCG

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