By Sam Boughedda
BofA analyst Julien Dumoulin-Smith upgraded Sempra Energy (NYSE:SRE) to Buy and downgraded Edison International (NYSE:EIX) to Underperform on Thursday as part of its second quarter California earnings preview.
Sempra shares are down 0.3% in the early part of the session, while Edison stock has fallen 2.5%. BofA has a $161 per share price target on Sempra and a $69 per share price target on Edison.
Dumoulin-Smith wrote that Sempra had pulled back 10% from its early May highs despite incremental progress on LNG contracting, with the probability of Port Arthur achieving a positive final investment decision (FID) increasing. He added that they view Sempra's focus on capital discipline as increasing their confidence in the outlook overall.
"Sempra has announced 6.7mtpa of agreements in 2022 and appears more open to announcing FID on Port Arthur without fully contracting the asset, rather relying on marketing/merchant volumes at least initially," explained Dumoulin-Smith. "Although we believe Sempra is requesting liquefaction fees that are higher than some peer developers, we believe that the global energy crisis is supportive of potential counterparties willing to pay a premium for higher confidence in gas supply deliverability."
Dumoulin-Smith said the firm downgraded Edison International due to financing exposure.
"EIX currently is a sell-side consensus Long (10 Buys/8 Holds/0 Sells) and has underperformed YTD but we still believe there are underappreciated risks to the outlook," the analyst wrote. "We now estimate below a 4% adjusted EPS CAGR due to mounting financing costs associated with legacy wildfire claims. The bulls will point to the potential recovery of the $5Bn+ wildfire & mudslide claims in 2025+; however, we still believe the prospects of customer recovery are less likely based upon precedent."