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Sempra Energy to Sell Renewable Assets for $1.5B to ConEd

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Sempra Energy (SRE - Free Report) recently announced that it has inked a definitive agreement with Consolidated Edison, Inc. (ED - Free Report) , to divest its U.S.-based renewable portfolio for a total cash of $1.54 billion. The deal includes Sempra Energy’s non-utility operating solar assets, solar and battery storage development projects and one wind facility. However, the deal remains subject to adjustments for working capital and pre-closing cash contributions.

The announcement comes in line with the company’s earlier made declaration in this June, that it will sell its entire U.S. renewable portfolio, to establish itself as America’s premier energy company.

The total capacity of assets to be sold, in the latest deal, is nearly 980 megawatts AC (MW) of the installed capacity in Sempra Energy's non-utility renewables portfolio. The company expects the contract to be completed by the end of 2018.

Rationale Behind the Deal

In June 2018, Sempra Energy notified its plan to sell its entire U.S.-based renewable portfolio as well as midstream assets, and focus more on investments in transmission and distribution of energy. The planned sales include the company’s solar and wind assets with a total generating capacity of approximately 2,600 megawatts along with projects already in development stage.

This decision came as part of the company’s Vision 2022 plan that includes a disciplined, three-phase execution of portfolio optimization and divestitures for strengthening its focus on North American business model. Per this plan, Sempra Energy expects to witness solid 13% annualized growth in its earnings per share (EPS) for the 2018-2022 period. We may expect proceeds from this latest divestiture deal to partially boost the company’s aforementioned EPS growth expectations.

Looking Ahead

Sempra Energy is expected to expand its footprint in energy infrastructure by constructing new liquid fuels projects in Mexico. The company announced that it has secured long-term contracts for storage at both its liquid fuel marine terminals in Mexico. The two terminals are likely to begin operations/come online during the second half of 2020.

Sempra Renewables has ownership interests and investments in nine solar projects in Nevada, Arizona and California and wind projects in eight states stretching from Hawaii to Pennsylvania. This indicates that there are still plenty of renewable assets in the company’s portfolio and the cash proceed by selling them will allow it to invest in infrastructural upgrade.

Price Performance

Shares of Sempra Energy have outperformed the industry in the past three months. The stock has dipped 0.7% comapred with its industry’s decline of 0.8%.

Zacks Rank & Stocks to Consider

Sempra Energy currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the same space include Ameren Corporation (AEE - Free Report) and Vivendi SA (VIVHY - 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.

Ameren’s earrings are expected to grow 6.6% over the period of 3-5 years. The stock has seen the Zacks Consensus Estimate for 2018 earnings being raised 6.6% from $3.21 per share to $3.25 over the past 60 days.  

Vivendi’s earrings are expected to rise 15% over the long-term period (3-5 years). The stock has seen the Zacks Consensus Estimate for 2018 earnings being revised 0.9% upward from $1.09 per share to $1.10 over the past 60 days.

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