Sempra Energy's (SRE) Systematic Investments Aid Growth

Sempra Energy SRE has been witnessing steady progress in its LNG terminal projects, while strategic investments in infrastructure development are tailwinds.

The company delivered an earnings surprise of 32.76% in the last reported quarter.

What’s Driving the Stock?

Sempra Energy appears to be well positioned, given its stable earnings from utility subsidiaries. Moreover, the company continues with systematic investments in its infrastructure development projects. For the 2020-2024 period, the company expects to make total investments of approximately $22.8 billion and aims at vigorously modernizing its electric transmission lines and substation infrastructure.

Sempra Energy is well positioned with strategically-located opportunities in North America, as worldwide demand for LNG continues to rise significantly. In an attempt to transform itself into North America’s premier energy infrastructure company, Sempra Energy completed the sale of its Peruvian businesses in April 2020, generating approximately $3.59 billion in total cash proceeds.

Interestingly, Sempra Energy has consistently been paying dividends at increasing rates, courtesy of its solid cash flow from operations. Notably, the company hiked its dividend by 8% in February 2020. Currently, the company maintains its annual dividend increase target of 8-9% over the next several years.

However, on the flip side, Sempra Energy’s both long-term and current debt levels lie much above its cash reserve, which makes us skeptical about its ability to duly meet the financial obligations. Moreover, the company’s interest coverage stands at 2.6%, lower than the prior-quarter level of 3.1% and also lowest in the past four quarters.

Zacks Rank & Price Performance

Sempra Energy holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The stock has dropped 12.3% in the past year compared with the industry’s decline of 26.8%.

Other Stocks to Consider

A few other similar-ranked stocks from the same sector are Atmos Energy Corporation ATO, Southwest Gas Corporation SWX and NextEra Energy, Inc. NEE.

Long-term earnings growth of Atmos Energy, Southwest Gas Corporation and NextEra Energy is pegged at 7.20%, 6% and 7.80%, respectively.

Atmos Energy, Southwest Gas Corporation and NextEra Energy pulled off a positive earnings surprise of 0.52%, 3.92% and 7.69%, respectively, in the last reported quarter.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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