BofA Securities has initiated coverage on Sempra Energy (NYSE: NYSE:SRE), assigning the stock a Buy rating with a price target set at $94.00.
The firm's analysis suggests an expected price return of 15.5%, with a total return potential of 18.5%.
The coverage reinstatement points to the underlying value in Sempra's regulated utility operations in California and Texas, rather than focusing solely on its liquefied natural gas (LNG) export business, which contributes over 10% to the price objective (PO).
According to the firm, Sempra Energy's utility-focused capital plans are gradually shifting the earnings mix towards the regulated side of the business.
The analyst notes that future Final Investment Decisions (FIDs) on LNG projects could provide Sempra with opportunities to divest equity in its infrastructure platform over time, adding to the 30% already sold.
The report highlights Sempra Energy's recent equity raise, which has provided the company with balance sheet flexibility for the first time in recent memory. The financial maneuvering is seen as a positive move, offering Sempra multiple opportunities for incremental capital expenditure that could be added to its investment plan.
BofA projects Sempra's earnings per share (EPS) for the years 2024, 2025, and 2026 to be $4.80, $5.16, and $5.67 respectively. These figures are slightly above the consensus of $4.77, $5.15, and $5.53 for the same periods, and are at the higher end of the company's own guidance.
In other recent news, Sempra Energy reported a strong second quarter in 2024, with an adjusted EPS of $0.89, and reaffirmed its full-year 2024 adjusted EPS guidance range. The energy services provider also witnessed a change in its board structure with the resignation of director Bethany J. Mayer. On the financial front, Sempra's subsidiary, Southern California Gas Company, successfully issued $600 million in First Mortgage Bonds, as part of Sempra's broader financial strategy to secure long-term financing for its subsidiary.
BMO Capital Markets has raised its price target for Sempra Energy to $90, indicating a positive outlook on the company's potential for regulated growth and expected developments by the end of 2024. Sempra is also expanding its influence in Texas's energy infrastructure development, with Oncor's five-year capital plan set at $24 billion.
However, it's worth noting that Sempra Infrastructure's ECA LNG Phase 1 project has been delayed until spring 2026 due to labor retention and productivity challenges.
InvestingPro Insights
As BofA Securities sheds light on the promising outlook for Sempra Energy, InvestingPro data and tips offer additional insights that can further inform investors about the company's financial health and market performance. Sempra Energy has demonstrated a commendable track record with a 27-year history of maintaining dividend payments and has been raising its dividend for 13 consecutive years. This consistency is a strong indicator of the company's commitment to shareholder returns and financial stability.
Analysts have revised their earnings upwards for the upcoming period, signaling confidence in the company's future performance. Moreover, Sempra is trading at a low P/E ratio relative to near-term earnings growth, suggesting that the stock may be undervalued compared to its growth potential. With a current market capitalization of $51.52 billion and a dividend yield of 3.05%, the company presents an attractive profile for income-focused investors.
While Sempra's stock trades near its 52-week high, reflecting investor optimism, it is important to note that short-term obligations exceed liquid assets, which could be a point of consideration for risk-averse investors. Nevertheless, the company's profitability over the last twelve months and the prediction by analysts that it will remain profitable this year offer reassuring signs for potential investors.
For those seeking more detailed analysis and additional InvestingPro Tips, there are currently 9 tips available, which can be accessed for Sempra Energy at https://www.investing.com/pro/SRE. These tips could provide further guidance and help investors make more informed decisions regarding their investments in Sempra Energy.
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