On Dec 31, we have issued an updated research report on Sempra Energy (SRE). The company’s steady investments in infrastructure development projects, systematic asset divestment strategy and focus on renewable ventures are expected to act as catalysts to its future performance. The company’s policy of paying dividends at regular intervals is also commendable. However, stringent government regulations coupled with several operational risks are potential headwinds.
This Zacks Rank #3 (Hold) stock continues to expand its operations through investments in organic growth projects. In the third quarter of 2014, the company invested around $0.84 billion as capital expenditure primarily in expanding substations, transmission and storage systems, improving existing utilities distribution facilities, and enhancing operations under the U.S. midstream business. These initiatives will collectively enable the company to provide reliable services besides meeting increasing demand.
In addition, Sempra Energy is also pursuing an asset divestment program and progressing with the divestment of the last block of its Mesquite combined-cycle power plant. The objective of this plan is to utilize the proceeds in profitable ventures that are in line with its long-term goal.
Focusing on expanding its renewable portfolio, particularly the solar and wind-based assets, will help Sempra Energy to deliver emission-free power to its customers. The company’s Sunrise Powerlink recently achieved its 1,000 megawatts renewable energy goal.
Sempra Energy is also dedicatedly maximizing shareholder value through payment of regular dividends. The company distributed $0.45 billion as common dividends during the first nine months of 2014.
On the flip side, pending regulatory cases for the regulated utilities of Sempra Energy remain major overhangs. Any unfavorable decision in the pending rate cases and cost-of-capital proceedings will impact the company’s financial performance adversely.
Key Picks from the Sector
Some better-ranked stocks in the sector include Southwest Gas Corporation (SWX), WGL Holdings Inc. (WGL) and Atmos Energy Corporation (ATO). Southwest Gas and WGL Holdings hold a Zacks Rank #1 (Strong Buy), while Atmos Energy carries a Zacks Rank #2 (Buy).
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