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Sempra Energy's IEnova to Build $150M Liquid Fuels Project

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Sempra Energy (SRE - Free Report) announced that its Mexican subsidiary — Infraestructura Energética Nova, S.A.B. de C.V. (IEnova) — has secured a $150 million contract for liquid fuels project from the Topolobampo Port Administration in Mexico. Per the terms of the agreement, IEnova will construct and operate a marine liquid fuels terminalin Sinaloa.

Notably, this latest project will operate as a receipt, storage and send-out terminal.

About the Project

Per the deal, IEnova will conduct the entire development process of this terminal that includes obtaining customer contracts and permits, engineering, procurement and construction as well as providing financing services. It will also supervise the work related to operations and maintenance.

On completion, the first phase of the Topolobampo terminal will have a capacity to store 1 million barrels of gasoline and diesel. IEnova expects to commence operations at the terminal in the fourth quarter of 2020.

Details of future phases of the project are not yet been disclosed but may have provisions for additional fuel storage capacity and storage of petrochemicals.

Our View

Per a report published by the International Energy Agency, Mexico’s total energy demand is expected to increase by approximately 20% by 2040 from 2016’s level, with increasing dominance of liquid fuels in power generations. This surely reflects solid growth prospects of the energy sector in Mexico, with liquid fuels at its center. This has set the stage for energy services providers like Sempra Energy to expand its footprints in Mexico by constructing new liquid fuels projects like the latest one.

Impressively, with Mexico opening up its energy sector to private investment in 2014, IEnova has invested more than $7.7 billion in assets and ranks among the largest energy companies in the country. In liquid fuels market, which has a value of $10 billion, the company is increasingly engaging in construction of fuel terminals.

For instance, in April 2018, IEnova announced that it will construct a marine liquid fuels terminal worth $130 million at the La Jovita Energy Hub in Ensenada. In sync with this, the latest Topolobampo project marks further expansion of business operations for IEnova in Mexico, where the company already enjoys a solid presence.

Such project constructions and their subsequent operationsshould increase Sempra Energy’s shares in the Mexico’s energy market, which the company believes to have a value of $45 billion.

Price Performance

In a year’s time, Sempra Energy has underperformed the industry it belongs to. Shares of the company have gained 4.4% compared with the industry’s 12.6% rise. This underperformance may have been caused due to stiff competition that Sempra Energy faces across the United States as well as its exposure to foreign currency risks.

Zacks Rank & Stocks to Consider

Sempra Energy currently has a Zacks Rank #5 (Strong Sell).

A few better-ranked stocks in the same space are Atmos Energy Coporation (ATO - Free Report) , ONEOK, Inc. (OKE - Free Report) and Chesapeake Utilities Corporation (CPK - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Atmos Energy surpassed the Zacks Consensus Estimate in three of the last four quarters, with an average surprise of 8.76%. The Zacks Consensus Estimate for fiscal 2018 earnings inched up 0.5% to $3.99 in the last 90 days.

ONEOK boasts an impressive long-term earnings growth rate of 9.5%. The Zacks Consensus Estimate for 2018 earnings rose 2.3% to $2.63 in the last 90 days.

Chesapeake Utilities outpaced the Zacks Consensus Estimate in three of the last four quarters, with an average surprise of 8.76%. The Zacks Consensus Estimate for 2018 earnings rose 1.5% to $3.49 in the last 90 days.

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