Sempra Powers Income Plus Growth

05/07/2015 7:00 am EST

Focus: STOCKS

David Dittman

Chief Investment Strategist, Australian Edge, Canadian Edge, & Utility Forecaster

We consider this featured utility stock to be the quintessential income-plus-growth story, asserts David Dittman, editor of Utility Forecaster.

Sempra Energy (SRE) has outperformed since early 2012; the primary factor driving this outperformance and supporting its premium valuation is its superior long-term growth prospects relative to diversified energy utility peers.

These prospects include midstream projects in the US and Mexico as well as the potential formation of an MLP or YieldCo supported by its Cameron LNG project in Louisiana as well as existing and prospective pipeline projects and renewable energy assets.

Sempra, whose primary subsidiaries include San Diego Gas & Electric and Southern California Gas, reported fourth quarter 2014 adjusted earnings per share growth of 8.8% to $1.23, supported by a 6.8% year-over-year decline in interest expense.

Sempra’s South American and Mexican utilities, its renewables, and its natural gas production segments posted solid growth.

Full-year adjusted EPS were up 12.7% to $4.71 on 4.5% revenue growth. Management guided to 2015 adjusted EPS of $4.60 to $5.00.

Sempra enjoys the benefits of a constructive regulatory environment at its California- and South America-based electric and gas utilities. 

And it continues to make sizable capital investments that will support solid growth through the end of the decade. Approximately 80% of earnings out to 2020 will be generated by regulated operations.

Its liquefied natural gas project is supported by long-term contracts and has low commodity-price and volume risk, although the recent slide in crude oil prices may impact the contracting process for expansion.

In February 2015, Cameron LNG initiated the pre-filing review process for the planned expansion of the company’s existing three-train liquefaction project. Sempra Energy is a buy under $112.

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