Sempra to Get Further Energized

San Diego Gas & Electric (“SDG&E”), a subsidiary of Sempra Energy (SRE - Analyst Report) has filed for regulatory approval of three new power-purchase contracts for a total of 450 megawatts (MW) of quick-start generation from Peaker plants proposed for San Diego County. Peaker plants are small, efficient power units that can reach full generating capacity within 10 to 15 minutes to meet immediate demand on the grid.

Sempra Energy is a southern California-based energy services holding company involved in the sale, distribution, storage, and transportation of electricity and natural gas.

In May this year, Sempra Energy announced its first-quarter 2011 earnings of $1.07 per share surpassing the Zacks Consensus Estimate of $1.02 and the year-ago quarterly earnings of 42 cents per share. Total revenue of Sempra Energy in the first-quarter 2011 was $2.4 billion versus $2.5 billion in the year-ago period, reflecting a fall of 3.9%. Reported revenue in the quarter was also lower than the Zacks Consensus Estimate by $23 million.

Sempra Energy’s diversified basket of businesses insulates its operations to a great extend from regulatory rate risks. Sempra presents a lower risk profile relative to its peers. This outlook is supported by stable utility earnings, steady progress at its LNG terminals, ongoing installations of smart meter and renewable power projects in the Pacific South-west.

However, due to a lack of any near-term positive triggers, along with near-term trepidation in natural gas prices, an ongoing land dispute regarding its LNG terminal in Mexico and pending regulatory cases, the company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock. In the near term, we would advise investors to accumulate its short-term Zacks #2 Rank (Buy rating) peers like Southwest Gas Corporation (SWX - Snapshot Report) and MDU Resources Group Inc. (MDU - Snapshot Report).

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