Zacks analyst Jon Kolb is maintaining his Buy recommendation on energy services company Sempra Energy (SRE), thanks to solid momentum from 2006 along with consistent earnings power. Read more below:
Impressive results by Sempra Energy in 2006, led by strong performance at its utilities business and supported by earnings accretive asset sales, support our bullish outlook on SRE.
Looking ahead, from a base of stable earnings via natural gas pipelines and storage, together with impressive results at Sempra Generation and new solar power contracts, we see consistent earnings power driven by continued profitability at Sempra Commodities.
However, we note that the company may face difficulties from a shrinking gas business, higher capital spending and a below industry average dividend yield. Accordingly, based upon a relatively cheap forward earnings valuation, we maintain our BUY recommendation on SRE.
Sempra Energy appears to be relatively well positioned to benefit from core electric and natural gas operations, wholesale energy commodities marketing and trading, development of liquefied natural gas (LNG) resources, and earnings accretive acquisitions. Growing demand within the company's core areas of operations, coupled with increased generation capacity, is expected to contribute to future growth. We expect ongoing LNG projects to help the company consolidate its market position over the long term. During the 2nd quarter of 2004, the California Public Utilities Commission (CPUC) approved a regional energy reliability plan, under which SDGamp;E acquired the 550MW natural gas-fired Palomar Energy plant in 2006 to meet the growing electricity demand in its key San Diego region. Alongside Carlyle/Riverstone (an energy and power-focused equity fund), SRE also completed the acquisition of nine power plants from American Electric Power (AEP).
Sempra Energy (NYSE: SRE) is a southern California-based energy services holding company involved in the sale, distribution, storage, and transportation of natural gas. The company operates through four reporting segments - Southern California Gas Company (SoCalGas), San Diego Gas amp; Electric (SDGamp;E), Sempra Commodities, and Sempra Generation.
Read the analyst report on SRE
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