On Monday, Guggenheim maintained its Buy rating on Sempra Energy (NYSE:SRE) shares with a consistent price target. The decision follows a recent proposed decision by the California Public Utilities Commission (CPUC) which recommended reductions in revenue increases for Sempra's subsidiaries SDG&E and SCG for the year 2024.
The CPUC's proposal also suggested a decrease in attrition year revenues to approximately 4% and a reduction to the test year rate base, particularly for SCG.
The firm's analyst highlighted that the CPUC's proposed decision was issued late last Friday and that they had an opportunity to discuss the details with Sempra's management. Although management did not provide specific commentary on the potential impact to earnings trajectory, they indicated that the proposed decision falls within the company's planning parameters.
The CPUC's recommendation has been compared to a previous general rate case involving Pacific Gas and Electric Company (PCG), where certain reductions favored intervenors' positions over balanced outcomes. The CPUC's suggested attrition year increases of 4% were framed as a challenge for the utility to improve performance rather than a reflection of the essential needs for program and project recovery.
Despite the CPUC's proposed decision being viewed as adverse compared to Sempra's plan, Guggenheim anticipates that there will be no change to the company's current earnings per share (EPS) guidance. This expectation is based on Sempra's diversified mix of regulated and unregulated business, which may provide a buffer against the proposed regulatory changes. The final outcome of the CPUC's decision remains to be seen.
In other recent news, Sempra Energy reported strong earnings for Q2 2024 with an adjusted EPS of $0.89. The company's subsidiary, Southern California Gas Company, also issued $600 million in First Mortgage Bonds, contributing to Sempra's broader financial strategy. Sempra's board saw a change with the resignation of director Bethany J. Mayer, marking a shift in the company's leadership structure.
Analyst firms have expressed confidence in Sempra's performance despite regulatory changes and project delays. BMO Capital Markets maintained an Outperform rating and increased its price target to $93, while BofA Securities initiated coverage with a Buy rating and a price target of $94. Mizuho Securities reiterated an Outperform rating, highlighting Sempra's confidence in handling potential challenges.
Sempra's management team has shown their commitment to their liquefied natural gas (LNG) strategy, despite the delay of the ECA LNG Phase 1 project until spring 2026. The company is also expanding its influence in Texas's energy infrastructure development, with Oncor's five-year capital plan set at $24 billion. These recent developments reflect Sempra's strategic direction and its continued efforts to deliver returns to investors.
InvestingPro Insights
Despite the regulatory challenges highlighted in the article, Sempra Energy (NYSE:SRE) demonstrates strong financial health and resilience according to recent InvestingPro data. The company's P/E ratio of 18.24 suggests a reasonable valuation, especially when considering its growth prospects. This is further supported by an InvestingPro Tip indicating that SRE is trading at a low P/E ratio relative to its near-term earnings growth.
Importantly for income-focused investors, Sempra has maintained dividend payments for 27 consecutive years and has raised its dividend for 13 consecutive years, as noted by InvestingPro Tips. This consistent dividend history underscores the company's financial stability and commitment to shareholder returns, even in the face of regulatory pressures.
The stock's recent performance is also noteworthy, with a 29.54% total return over the past year and trading near its 52-week high. This positive momentum, combined with analysts' predictions of profitability for the current year, suggests that investors remain confident in Sempra's ability to navigate regulatory challenges and maintain its growth trajectory.
For readers interested in a more comprehensive analysis, InvestingPro offers additional tips and insights, with 8 more tips available for Sempra Energy.
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