Wells Fargo Upgrades Sempra Energy, Says Overhangs Are In The Past

Sempra Energy SRE stock traded higher Monday morning after the company got some love from one Wall Street analyst.

The Analyst

Wells Fargo analyst Sarah Akers upgraded Sempra from Market Perform to Outperform and raised her price target from $125 to $128.

The Thesis

Overhangs such as 2020 guidance, the Mexican election and the company’s equity offering are now in the rear-view mirror and there are several potentially positive catalysts ahead. Since mid-June Sempra stock has underperformed the broader market by 13 percent, but Akers said that trajectory will soon change.

“Looking ahead, we see a clear path to outperformance should management execute on the base plan and remain disciplined in pursuing upside opportunities,” Akers wrote in a note. She said the company’s 2020 guidance is likely on the conservative sidem, and the company should have no problem either meeting or exceeding those expectations. Akers lowered her 2019 and 2020 EPS estimates from $6.10 and $7.12 to $6.00 and $6.98, respectively.

Akers estimates Sempra will complete its divestment of its renewables portfolio and certain midstream assets by mid-2019 and will use the roughly $2.2 billion in proceeds to pay down debt and improve the company’s balance sheet. She said the balance sheet has been a source for concern among investors since Sepra stretched it a bit to complete its acquisition of Oncor.

Moody’s put Sempra on review for a potential credit downgrade in June, but Akers says the asset sales and recent equity offering should keep the rating stable over the next several years.

Price Action

Sempra stock traded around $117.34 at time of publication.

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