Mizuho has maintained an Outperform rating on Sempra Energy (NYSE: NYSE:SRE) and increased the price target to $93 from $88.
The firm's analyst cited the recent Proposed Decision (PD) in Sempra California's general rate case as a positive development. The PD, although a recommendation, is seen as a starting point for negotiations, with the expectation that the case will be concluded within 2024.
The analyst noted that while the revenue increases for the years 2025-2027 are lower than anticipated, the upcoming comment period presents an opportunity for the utilities to justify their requests. The PD also endorsed the utility's insurance settlement, including SDG&E's wildfire insurance cost premium, which is seen as a favorable outcome.
The decision requires a 30-day interval between the PD and the final order, indicating that a conclusion is on the horizon. Sempra Energy's use of forward-looking test years in California regulation is beneficial, as it eliminates the risk of disallowances for the company.
In other recent news, Sempra Energy has seen significant developments in its earnings and revenue results, alongside adjustments in analyst ratings. Sempra reported robust earnings for Q2 2024, with an adjusted EPS of $0.89, and its subsidiary, Southern California Gas Company, issued $600 million in First Mortgage Bonds.
Analyst firms BMO Capital, Guggenheim, Mizuho Securities, and BofA Securities have all maintained positive ratings for Sempra, with BMO Capital raising its price target to $96.00, reflecting confidence in the company's growth trajectory and regulatory environment.
These developments follow the recent release of the Administrative Law Judge's Proposed Decision (PD) in the General Rate Cases for Southern California Gas Company and San Diego Gas & Electric, subsidiaries of Sempra Energy.
The PD supports approximately $1.6 billion in rate relief, about half of the combined rate increase request from the two utilities. Despite the proposed decrease in revenue increases by the California Public Utilities Commission, Guggenheim anticipates no change to Sempra's current earnings per share guidance.
Sempra's management has expressed confidence in their ability to handle the impacts of the delayed Energía Costa Azul liquefied natural gas project and recent modifications to the Cost of Capital framework. The company's strategic direction also includes expanding its influence in Texas's energy infrastructure development, with Oncor's five-year capital plan set at $24 billion.
InvestingPro Insights
Sempra Energy's recent regulatory developments align with several key metrics and insights from InvestingPro. The company's stock is currently trading near its 52-week high, with a price that's 99.8% of its peak, reflecting investor confidence in light of the positive regulatory outlook. This aligns with Mizuho's increased price target and Outperform rating.
InvestingPro data shows that Sempra Energy has a P/E ratio of 18.24, which is relatively low compared to its near-term earnings growth potential. This suggests that the stock may still have room for appreciation, supporting Mizuho's bullish stance. Additionally, Sempra Energy boasts a strong dividend history, having raised its dividend for 13 consecutive years and maintained payments for 27 years. This demonstrates the company's financial stability and commitment to shareholder returns, which is particularly relevant given the regulatory discussions around revenue increases.
InvestingPro Tips highlight that Sempra Energy is expected to remain profitable this year, which is crucial as the company navigates the regulatory landscape and potential revenue adjustments. The stock's low price volatility could also be appealing to investors seeking stability during the ongoing rate case negotiations.
For those interested in a deeper analysis, InvestingPro offers 6 additional tips that could provide further insights into Sempra Energy's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.