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Sempra (SRE) Up 4.4% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for Sempra (SRE). Shares have added about 4.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Sempra due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Sempra Energy Q2 Earnings Miss, Revenues Improve Y/Y

Sempra Energy second-quarter 2019 adjusted earnings per share (EPS) came in at $1.10, which missed the Zacks Consensus Estimate of $1.19 by 7.8%. The bottom line also declined 18.5% from $1.35 registered in the prior-year quarter.

Barring one-time items, the company generated GAAP earnings of $1.26 per share against a loss of $2.11 incurred in second-quarter 2018. This year-over-year downside can be attributed to the absence of benefits from its U.S. solar, wind and certain non-utility natural gas storage assets, which the company sold this April.

Total Revenues

In the quarter under review, total revenues of $2,230 million increased 2.5% year over year on higher contributions from its Utilities (up 4.1%) business. The top line, however, missed the consensus mark of $2,318 million by 3.8%.

Segment Update

San Diego Gas & Electric (SDG&E): Quarterly earnings amounted to $143 million compared with the year-ago quarter’s $146 million.

Southern California Gas Company (SoCalGas): At this segment, quarterly earnings totaled $30 million in the second quarter of 2019 compared with $33 million registered in the prior-year quarter.

Sempra Texas Utility: Earnings at this segment came in at $113 million in the reported quarter compared with $114 million in the year-ago quarter.

Sempra Mexico: The segment recorded net earnings of $73 million compared with $97 million in the year-ago quarter.

Sempra Renewables: The segment recorded net quarterly earnings of $43 million against a loss of $109 million incurred in the second quarter of 2018.

Sempra LNG: The segment reported earnings of $6 million against the year-ago quarter’s loss of $764 million.

Parent and Other: Quarterly loss at this division rose to $127 million from the year-ago quarter’s loss of $126 million.

Financial Update

As of Jun 30, 2019, Sempra Energy’s cash and cash equivalents totaled $168 million compared with $102 million as of Dec 31, 2018.

Long-term debt and finance leases amounted to $21,199 million as of Jun 30, 2019, compared with $20,903 million at 2018 end.

Cash flow from operating activities was $1,704 million at the end of second-quarter 2019, up from $1,673 million at the end of second-quarter 2018.

In the reported quarter, the company’s total capital expenditures, investments and acquisitions summed $2,165 million compared with $1,061 million in the second quarter of 2018.

Highlights of the Quarter

To enhance its LNG development projects, Sempra LNG signed a heads of agreement (HOA) with Aramco Services Company in May. The HOA anticipates the negotiation and finalization of a definitive 20-year LNG sale-and-purchase agreement for 5 million tonnes per annum of LNG offtake from the Port Arthur LNG export project under development.

Moreover, the company bought an indirect 50% limited-partnership interest in Sharyland Utilities, while its Oncor division acquired InfraREIT this May.

2019 Guidance

Sempra Energy reaffirmed its earnings guidance for 2019. The company still expects to generate earnings of $5.70-$6.30. The Zacks Consensus Estimate for full-year earnings stands at $6.02, above the midpoint of the company projected view.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

At this time, Sempra has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision has been net zero. Notably, Sempra has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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