Sempra (SRE) Up 1.9% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Sempra (SRE). Shares have added about 1.9% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Sempra due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Sempra Energy Beats on Q3 Earnings, Ups '19 EPS View

Sempra Energy’s third-quarter 2019 adjusted earnings per share (EPS) came in at $1.50, which surpassed the Zacks Consensus Estimate of $1.49 by 0.7%. The bottom line also improved 22% from $1.23 registered in the prior-year quarter.

Barring one-time items, the company generated GAAP earnings of $2.84 per share compared with 99 cents in third-quarter 2018. This uptick can be attributed to year-over-year revenue and operating income growth.

Total Revenues

In the quarter under review, total revenues of $2,758 million increased 7.5% year over year on higher contributions from its Utilities (up 14.1%) business. The top line, however, missed the consensus mark of $2,922 million by 5.6%.

Segment Update

San Diego Gas & Electric (SDG&E): Quarterly earnings amounted to $263 million compared with the year-ago quarter’s $205 million.

Southern California Gas Company (SoCalGas): At this segment, quarterly earnings totaled $143 million in the third quarter of 2019 compared with $14 million registered in the prior-year quarter.

Sempra Texas Utility: Earnings at this segment came in at $212 million in the reported quarter compared with $154 million in the year-ago quarter.

Sempra Mexico: The segment recorded net earnings of $84 million compared with $44 million in the year-ago quarter.

Sempra Renewables: The segment did not record any earnings in the third quarter against earnings of $34 million in the third quarter of 2018.

Sempra LNG: The segment reported earnings of $2 million compared with the year-ago quarter’s $16 million.

Parent and Other: Quarterly loss at this division narrowed to $139 million from the year-ago quarter’s loss of $211 million.

Financial Update

As of Sep 30, 2019, Sempra Energy’s cash and cash equivalents totaled $106 million compared with $102 million as of Dec 31, 2018.

Long-term debt and finance leases amounted to $20,995 million as of Sep 30, 2019 compared with $20,903 million at 2018 end.

Cash flow from operating activities was $1,829 million at the end of third-quarter 2019, down from $2,439 million at the end of third-quarter 2018. In the reported quarter, the company’s total capital expenditures, investments and acquisitions were $997 million compared with $918 million in the third quarter of 2018.

Highlights of the Quarter

In September, Sempra LNG entered into a memorandum of understanding (MOU) with China Three Gorges Corporation regarding potential cooperation for the supply of LNG to support demand in China, including growth of natural gas power generation.

In August, the Cameron LNG liquefaction-export project in Hackberry, LA began commercial operations at Train 1 of the facility. The project, including Trains 2 and 3, is over 96% complete. Commissioning of Train 2 is underway and the previously disclosed project timeline remains unchanged.  

2019 Guidance

Sempra Energy raised its earnings guidance for 2019. The company currently expects to generate earnings of $6.00-$6.50 per share compared with the earlier guidance range of $5.70-$6.30. The Zacks Consensus Estimate for full-year earnings stands at $6.08, lower than the midpoint of the company projected view.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

Currently, Sempra has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Sempra has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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