Sempra Energy SRE recently announced that its subsidiary has reached a definitive agreement to sell its non-utility U.S. natural gas storage facilities for $332 million in cash to an affiliate of ArcLight Capital Partners, LLC.
Details of the Deal
The gas storage assets included in the divestment are the Mississippi Hub storage facility in Simpson County, MS with a working capacity of 22.3 billion cubic feet (Bcf) of natural gas and the Bay Gas storage facility in Southwest Alabama comprising five underground caverns with a working capacity of 20.4 Bcf of natural gas.
Sempra Energy currently owns nearly 91% stake in the Bay Gas storage facility and the company will further acquire the remaining 9% of the minority interest, immediately prior to the sale.
At the close of the above transaction, ArcLight will full ownership of Mississippi Hub and Bay Gas storage facilities. The company expects the divestiture of the non-utility natural gas properties to be closed in first-quarter 2019, subject to customary closing conditions.
Rationale Behind the Deal
In June 2018, Sempra Energy notified its plan to sell its entire U.S.-based renewable portfolio as well as storage assets and focus more on investments in transmission and distribution of energy.
This decision came as part of the company’s Vision 2022 plan that constitutes 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 the company’s earnings per share (EPS) for the 2018-2022 period. Proceeds from this latest divestment deal are likely to partially boost the company’s aforementioned EPS growth expectations.
What’s Favoring Sempra Energy?
In March 2018, Sempra Energy completed the acquisition of Oncor Electric Delivery Company, LLC (‘’Oncor’’) for $9.5 billion in cash. Following the deal's closure, Texas’ largest electric transmission and distribution provider was added to Sempra Energy’s portfolio. In a bid to expand and reinforce its transmission and distribution network, Sempra Energy has decided to support Oncor's plan of investing capital worth $10.5 billion for a five-year period. This, in turn, will enhance the service territory of Sempra Energy, widening its opportunities to earn more profit.
Also, the company continues with systematic investments in its infrastructure development projects. For the 2018-2020 period, it expects to incur a capital expenditure and make investments of approximately $15.2 billion including $12.3 billion for California Utilities and $2.9 billion for other subsidiaries with regard to funding the capital projects in Mexico and South America along with developing LNG projects. Through these investments, the company aims at vigorously modernizing its electric transmission lines and substation infrastructure.
Price Performance
Shares of Sempra Energy have outperformed the industry in the past 12 months. The stock has slipped 0.6% compared with its industry’s decline of 1.5%.
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Zacks Rank & Other Stocks to Consider
Sempra Energy currently carries a Zacks Rank #2 (Buy). Other top-ranked stocks in the same space include Atmos Energy Corporation ATO, Southwest Gas Corporation SWX, and Spire Inc. SR, each carrying a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Atmos Energy delivered average positive surprise of 7.42% in the last four reported quarters. The Zacks Consensus Estimate for fiscal 2019 earnings has inched 0.2% up to $4.28 in the past 60 days.
Southwest Gas came up with average beat of 31.31% in the trailing four reported quarters. The Zacks Consensus Estimate for 2018 earnings has been revised 1.3% upward to $3.79 in the past 60 days.
Spire came up with average beat of 14.37% in the trailing four reported quarters. The Zacks Consensus Estimate for fiscal 2019 earnings has been revised 1.1% upward to $3.75 in the past 60 days.
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