On Friday, BMO Capital Markets adjusted its outlook on Sempra Energy (NYSE:SRE), increasing the stock's price target to $90 from the previous $88, while retaining an Outperform rating. The firm identified Sempra Energy's current trading discount as an opportune moment for investment, highlighting the company's potential for regulated growth and a series of positive developments expected by the end of 2024.
Sempra Energy's stock has been trading at an 11-12% discount compared to its peers, which BMO Capital views as an appealing entry point for investors. The analyst from BMO Capital anticipates several key events that could serve as catalysts for Sempra Energy's stock performance.
These include a final order from the California General Rate Case (GRC), approval of the Oncor System Reliability Project (SRP), a potential capital update in the third quarter of 2024, a lift on the liquefied natural gas (LNG) pause following the election, and a fourth-quarter call that is expected to reveal an Oncor-led capital and rate base update.
The firm's positive stance is further reinforced by the expectation of a capital and rate base update led by Oncor, which is anticipated to confirm BMO Capital's above-consensus estimates for Sempra Energy's performance between 2024 and 2026. These estimates suggest annual growth rates of 2.0-2.5%.
The analyst's statement underscores a comprehensive approach to evaluating Sempra Energy's value, combining mark-to-market assessment and sum-of-the-parts (SOTP) analysis to arrive at the new $90 price target. This target implies a total return of 19% for the energy company's shares. BMO Capital's maintained Outperform rating reflects confidence in Sempra Energy's ability to surpass market expectations based on these projected growth drivers.
In other recent news, energy infrastructure firm Sempra reported a solid second quarter in 2024, with an adjusted EPS of $0.89, and reaffirmed its full-year 2024 adjusted EPS guidance range. The company is investing in grid modernization and cleaner energy delivery, primarily in California and Texas.
Sempra's expansion strategy includes a significant role in Texas's energy infrastructure development, with Oncor's five-year capital plan in Texas set at $24 billion. Additionally, Sempra expects to build a considerable portion of the $13-15 billion transmission investments filed by ERCOT.
However, Sempra Infrastructure's ECA LNG Phase 1 project is facing delays until spring 2026 due to labor retention and productivity challenges. Despite these setbacks, the company remains confident in meeting its financial targets and delivering returns. Sempra also sees the SRP as an opportunity to support growth in Texas and is committed to investing in the state's energy infrastructure. These are some of the recent developments that have been shaping the company's trajectory.
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