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Sempra Energy's Renewable Expansion to Drive Growth - Analyst Blog

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We updated a research report on Sempra Energy SRE on May 27. The company’s robust expansion of renewable capacity and various development projects are likely to boost its financials. Moreover, the company’s investor-friendly policies will help retain shareholder interest. However, environmental regulations and operational risks may hamper the company’s future performance.

San Diego, CA-based Sempra Energy’s first-quarter 2015 earnings surpassed the Zacks Consensus Estimate by 22.1%. Earnings also soared 66% to $1.71 per share from the prior-year quarter on the back of strong performance at the company’s subsidiaries. While Southern California Gas Co's earnings rose 174%, San Diego Gas & Electric reported 48.5% earnings growth. Sempra Energy appears to be well positioned, given its stable earnings from utility subsidiaries.

The company has multiple development ventures that are expected to boost its top and bottom line over the long haul. Sempra Energy plans to spend $19.1 billion as capital expenditure between 2015 and 2019. In addition, $7 billion to $8 billion has been allocated for development opportunities.

Moreover, the company believes that its three Liquified Natural Gas (“LNG”) export expansion projects have a competitive edge and will see long-term demand growth. The Cameron LNG liquefaction export facility is on track to complete all three trains in 2018. Starting from 2019, it is expected to generate $300 million to $350 million in earnings per year.

The company is also expanding its renewable capacity by venturing into solar, hydro and wind energy projects. After the completion of Copper Mountain Solar 3, the capacity of the solar power facility, jointly owned by Sempra U.S. Gas & Power and Consolidated Edison Development, comes to 660 megawatts (“MW”). Moreover, Sempra Renewables recently acquired the 78-MW Black Oak Getty Wind project in Stearns County, MN, which is set to begin operation in late 2016. Given that California aims to generate 33% of its electricity from renewable sources in the next five years, Sempra Energy is likely to benefit substantially from its operations in this sector.

Sempra Energy hikes its quarterly dividend every February. The last dividend hike of 6% was in Feb 2015. The company’s dividend has increased roughly 80% since 2010. The company expects around 6% growth in annual dividend rates by 2019.

On the downside, the company’s operations are subject to headwinds in the form of equipment failure, transportation problems, accidents and natural calamities. Moreover, risks related to foreign currency fluctuations might affect the company’s overseas operations adversely.

Sempra Energy currently has a Zacks Rank #2 (Buy). Other favorably placed stocks in the utility space include Chesapeake Utilities Corporation CPK, sporting a Zacks Rank #1 (Strong Buy), and AGL Resources Inc. GAS and New Jersey Resources Corp. NJR, both carrying the same Zacks Rank as Sempra Energy.

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SEMPRA ENERGY (SRE): Free Stock Analysis Report
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