BMO Capital Markets has maintained an Outperform rating on Sempra Energy (NYSE: NYSE:SRE) and increased its price target to $93 from $90.
The adjustment follows a proposed decision by Administrative Law Judge Lakey that could potentially affect the return on equity (ROE) for California utilities.
Despite the proposed changes, which may lower the ROE for Southern California Gas (SoCalGas) and San Diego Gas & Electric (SDG&E) by 42 basis points, BMO Capital Markets remains optimistic about Sempra Energy's performance.
The proposed decision by Judge Lakey, issued on Wednesday, involves a revision to the California Public Utilities Commission’s (CPUC) cost of capital mechanism.
The adjustment, if accepted, is expected to have a moderate impact on the utilities, reducing their ROE by approximately 2%, which translates to a $0.09 per share effect on BMO Capital's 2025 earnings per share (EPS) estimate for Sempra Energy.
Despite this development, BMO Capital has reiterated its positive stance on Sempra Energy, expressing confidence in the company's medium-term sum of the parts (MTM SOTP) target price. The firm's estimates for Sempra Energy's EPS for the years 2024 to 2026 remain above consensus, standing at $4.90, $5.28, and $5.63, respectively.
The analyst's outlook for Sempra Energy suggests that the company is well-positioned to navigate the regulatory changes without significant detriment to its financial performance. The firm's decision to raise the price target to $93 reflects this confidence and anticipates that Sempra Energy will continue to outperform in the market.
Sempra Energy reported strong earnings for the second quarter of 2024, with an adjusted EPS of $0.89. The company also reaffirmed its full-year 2024 adjusted EPS guidance range. In a significant financial move, Sempra's subsidiary, Southern California Gas Company, successfully issued $600 million in First Mortgage Bonds, contributing to the company's broader financial strategy. Sempra's board also saw a change with the resignation of director Bethany J. Mayer.
BofA Securities has initiated coverage on Sempra Energy, assigning the stock a Buy rating and projecting earnings per share for the years 2024, 2025, and 2026 to be $4.80, $5.16, and $5.67 respectively. BMO Capital Markets has also shown confidence in Sempra, raising its price target to $90, indicating a positive outlook for the company's regulated growth.
However, the company's ECA LNG Phase 1 project has been delayed until spring 2026 due to labor and productivity challenges. Despite this, Sempra continues to expand its influence in Texas's energy infrastructure development, with Oncor's five-year capital plan set at $24 billion.
InvestingPro Insights
As Sempra Energy (NYSE:SRE) navigates the regulatory waters with the recent proposal affecting California utilities, it's important for investors to consider a broader set of financial metrics and analyst insights. According to InvestingPro data, Sempra Energy boasts a stable market cap of $51.52 billion and a Price/Earnings (P/E) ratio of 17.32, which aligns closely with near-term earnings growth, indicating the stock may be trading at a fair value relative to its earnings potential.
InvestingPro Tips highlight that Sempra Energy has raised its dividend for 13 consecutive years, showcasing a strong commitment to shareholder returns. Additionally, 4 analysts have revised their earnings upwards for the upcoming period, suggesting a positive outlook on the company's financial health. These insights, along with the fact that the company has maintained dividend payments for 27 consecutive years, provide a layer of confidence in Sempra's ability to sustain its shareholder-friendly policies.
Investors interested in delving deeper into Sempra Energy's performance can find additional InvestingPro Tips by visiting https://www.investing.com/pro/SRE. With a comprehensive set of metrics and insights, informed decision-making is more accessible for those tracking the company's progress amidst evolving market conditions.
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