Sempra EnergySRE

Morningstar Rating

Stock Research and Analysis

by Mark Barnett

Sempra Energy is one of the most diversified natural gas plays in the United States. Formed by the merger in 1998 of two California utilities, San Diego Gas and Electric and Southern California Gas, the company has steadily expanded its footprint to Read more

Bulls Say

Opportunities for rate-base growth at Sempra's utilities are nearly unrivaled in the U.S., and improved California regulation allows the company to collect best-in-class returns.

Sempra is well-positioned to profit from volatile energy prices, given the delicate energy and commodity supply-demand balance worldwide.

The joint venture with RBS removed significant collateral risk associated with Sempra's trading book and will leverage the bank's global presence to find opportunities in foreign markets.

Sempra's LNG terminals, pipeline and storage facilities, and merchant gas-fired power plants give investors moderate exposure to a growing market for natural gas.

Sempra's Costa Azul facility is currently North America's only West Coast LNG receipt terminal. Read more

Bears Say

Sempra's nonregulated businesses bring an increased dose of risk. Traditional income investors looking for a low-risk dividend stream may find this firm less palatable than more pure-play utilities.

Questions surrounding RBS' financial health raise legitimate concerns about the future of the RBS Sempra Commodities partnership. Intervention by the British government is still possible.

Economic troubles in California could lead to pressure on public utilities to keep customer rates down and slow the renewables rush.

The outlook for LNG deliveries to the U.S. is highly uncertain, even with a stark decline in Asian industrial activity.

Cost overruns at Sempra's REX pipeline project with Kinder Morgan KMP and ConocoPhilips COP have dramatically reduced the returns the company will realize during the life of the asset. Read more

Strategy

Sempra has refocused its capital spending plans on regulated distribution investments, renewable energy projects, and transmission lines. The commodities trading partnership with RBS intends to expand Read more

Management

Don Felsinger was elected CEO and chairman in 2005, replacing Stephen Baum. Felsinger and Baum were instrumental in the company's growth since Sempra was founded in 1998 and were employed by the predecessor companies for more than a decade. Baum's compensation Read more

Profile

Sempra serves one of the largest utility customer bases in the U.S., distributing natural gas and electricity to customers in Southern California. Its SoCalGas and San Diego Read more

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