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Sempra Energy Offers Long-Term Outlook, Keeps FY17 View
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Sempra Energy (SRE - Free Report) recently issued its long-term financial outlook at its analyst conference in San Diego, CA. The utility reaffirmed its 2017 earnings per share (EPS) guidance at $4.85–$5.25 apart from offering a detailed outline of its strategic initiatives.
For 2018, Sempra Energy expects to generate EPS in the range of $5.30 to $5.80. The Zacks Consensus Estimate of $5.64 for 2017 earnings is above the mid-point of the company provided range.
Long-Term Projections
Over the next five years, Sempra Energy’s projected compound annual growth rate (CAGR) for EPS is in the range of 10–11%. Notably this assumes total capital investment of $14.2 billion, placeholder spending of $1.5 billion and 100 megawatt (MW) of renewable projects that are in-service in 2017. This placeholder expense aims at reducing the company’s adjusted funds from operations (FFO)-to-Debt to 20% by 2021.
The company also plans an off-balance sheet capital investment worth $1.8 billion, in addition to the $14.2 billion initiative. Adjusted operating cash flow is estimated in the range of $18.9–$19.3 billion, along with $4.6–$5.3 billion of free cash flow.
In the same time period, the company’s shareholders can expect annual dividend per share (DPS) growth of 8–9%. In fact, management believes this growth rate will surpass that of Sempra Energy’s S&P 500 utilities peers, currently pegged at 5–6%. Moreover, the company projects additional debt capability of $2.5–$4.5 billion.
Also, its U.S. portfolio mix is expected to grow in the next five years with the LNG export expansion projects – Cameron Trains 1-3 likely to come online by that time. Also, Sempra Energy expects to witness rate base growth of 6-7% at CAGR.
With respect to California utilities, the company’s 5-year plan includes capital expenditure worth $12.3 billion, in line with its earlier projection. Its safe and reliable energy will cater to more than 25 million customers. In South America, the company has potential growth opportunities in Peru and Chile.
On the flip side, California utilities assume per year attrition of 3.5% post 2018, while its Mexican business unit – IEnova will include only online-projects through 2019. Commodity and foreign exchange rates are also expected to affect long-term EPS growth.
Our View
Sempra Energy enjoys a noticeable share of the utility sector – thanks to stable earnings from utility subsidiaries. The aforementioned investment plans will surely encourage investors to consider this stock. However, failure to successfully execute every plan might hurt the company’s growth trajectory.
Earlier, Sempra Energy announced plans to drop any kind of cash repatriation from earnings in Mexico or Peru and hinted at reinvesting more overseas. Although the company has not disclosed anything in terms of foreign investment in the recent analyst conference, identifying Mexico and Peru as areas of opportunities surely reflects management’s objective to expand in the regions.
However, significant overseas presence brings with it the risk of fluctuating foreign currency and the company itself has also identified it as a major impediment for its growth.
Meanwhile, Sempra Energy’s shares gained 5.9% in the last one year, underperforming the Zacks categorized Utility-Gas Distribution industry’s gain of 17.8%. This might have been triggered by challenges that the nuclear industry has been facing of late, given the availability of low-priced natural gas and the government-subsidized wind sector. Also, the company faces tough competition from utility peers like ONE Gas, Inc. (OGS - Free Report) , Delta Natural Gas Company, Inc. and WGL Holdings Inc. .
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Sempra Energy Offers Long-Term Outlook, Keeps FY17 View
Sempra Energy (SRE - Free Report) recently issued its long-term financial outlook at its analyst conference in San Diego, CA. The utility reaffirmed its 2017 earnings per share (EPS) guidance at $4.85–$5.25 apart from offering a detailed outline of its strategic initiatives.
For 2018, Sempra Energy expects to generate EPS in the range of $5.30 to $5.80. The Zacks Consensus Estimate of $5.64 for 2017 earnings is above the mid-point of the company provided range.
Long-Term Projections
Over the next five years, Sempra Energy’s projected compound annual growth rate (CAGR) for EPS is in the range of 10–11%. Notably this assumes total capital investment of $14.2 billion, placeholder spending of $1.5 billion and 100 megawatt (MW) of renewable projects that are in-service in 2017. This placeholder expense aims at reducing the company’s adjusted funds from operations (FFO)-to-Debt to 20% by 2021.
The company also plans an off-balance sheet capital investment worth $1.8 billion, in addition to the $14.2 billion initiative. Adjusted operating cash flow is estimated in the range of $18.9–$19.3 billion, along with $4.6–$5.3 billion of free cash flow.
In the same time period, the company’s shareholders can expect annual dividend per share (DPS) growth of 8–9%. In fact, management believes this growth rate will surpass that of Sempra Energy’s S&P 500 utilities peers, currently pegged at 5–6%. Moreover, the company projects additional debt capability of $2.5–$4.5 billion.
Also, its U.S. portfolio mix is expected to grow in the next five years with the LNG export expansion projects – Cameron Trains 1-3 likely to come online by that time. Also, Sempra Energy expects to witness rate base growth of 6-7% at CAGR.
With respect to California utilities, the company’s 5-year plan includes capital expenditure worth $12.3 billion, in line with its earlier projection. Its safe and reliable energy will cater to more than 25 million customers. In South America, the company has potential growth opportunities in Peru and Chile.
On the flip side, California utilities assume per year attrition of 3.5% post 2018, while its Mexican business unit – IEnova will include only online-projects through 2019. Commodity and foreign exchange rates are also expected to affect long-term EPS growth.
Our View
Sempra Energy enjoys a noticeable share of the utility sector – thanks to stable earnings from utility subsidiaries. The aforementioned investment plans will surely encourage investors to consider this stock. However, failure to successfully execute every plan might hurt the company’s growth trajectory.
Earlier, Sempra Energy announced plans to drop any kind of cash repatriation from earnings in Mexico or Peru and hinted at reinvesting more overseas. Although the company has not disclosed anything in terms of foreign investment in the recent analyst conference, identifying Mexico and Peru as areas of opportunities surely reflects management’s objective to expand in the regions.
However, significant overseas presence brings with it the risk of fluctuating foreign currency and the company itself has also identified it as a major impediment for its growth.
Meanwhile, Sempra Energy’s shares gained 5.9% in the last one year, underperforming the Zacks categorized Utility-Gas Distribution industry’s gain of 17.8%. This might have been triggered by challenges that the nuclear industry has been facing of late, given the availability of low-priced natural gas and the government-subsidized wind sector. Also, the company faces tough competition from utility peers like ONE Gas, Inc. (OGS - Free Report) , Delta Natural Gas Company, Inc. and WGL Holdings Inc. .
Zacks Rank
Sempra Energy currently has a Zacks Rank #3 (Hold). You can seethe complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>