Sempra Energy, SRE, NYSE:SRE, Sempra Energy News, Investing in Sempra Energy
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Sempra is betting on the expected rise in demand for natural gas storage. It is forging ahead and this may not be a good time to sell short. However, is Sempra’s buyback plan a good indicator of there being value in the company’s shares?
Sempra is betting on the expected rise in demand for natural gas storage. It is forging ahead and this may not be a good time to sell short. However, is Sempra’s buyback plan a good indicator of there being value in the company’s shares?
Sempra Energy (NYSE: SRE) is an energy services holding company. Its subsidiaries develop energy infrastructure, operate utilities and provide related products and services.
The San Diego, California-based company has entered into a definitive agreement to acquire EnergySouth Inc for $510 million. The all-cash deal represents a 23% premium to Mobile, Alabama-based EnergySouth’s share price on the trading day prior to the announcement. Sempra intends to fund the deal with cash in hand and debt. Undoubtedly, the acquisition would strengthen the company’s foothold in the natural gas storage and distribution business. However, the deal would adversely impact Sempra’s financial fundamentals, since the company has agreed to assume EnergySouth’s debt to the tune of $283 million.
Sempra hopes to complete the acquisition deal, which is still pending approvals, by the end of this year. It has indicated that the acquisition is likely to be marginally accretive to its earnings per share next year and would add 30 cents in 2012. The company has further indicated that this acquisition would not put reigns on its $1.5 billion share buyback plan.
While most equity analysts have good ratings, ranging from hold to strong buy, for Sempra (according to analysts polled by Thompson/First Call), ratings agency Standard & Poor’s said that it expects the company’s key credit metrics to decline significantly through 2009.
Sempra reported its earnings for the first quarter of 2008 at $0.92 per share, in-line with the consensus. The company’s quarterly revenues grew by a little over 5% to $3.3 billion. The company does have earnings growth potential, with a number of projects expected to be completed over the next few years. Moreover the EnergySouth acquisition would position Sempra to benefit from the expected rise in demand for natural gas storage facilities.
Shares of Sempra plummeted from their 52-week high of $64.21 on December 11, 2007 to their 52-week low of $48.58 on March 20, 2008. Shares have recovered since, trading around $55. While the company’s earnings prospects are good, the PEG is 1.84. It may be a wise decision to wait for a better entry point.
Alternatio Cirqui, EconomyWatch.com Energy Correspondent
