Jefferies cuts Sempra Energy stock price target to $75 from $77

On Monday, Jefferies analyst Julian Dumoulin-Smith adjusted the price target on Sempra Energy (NYSE:SRE) shares, reducing it to $75.00 from the previous target of $77.00. Despite the change in price target, the analyst retained a Hold rating on the stock. According to InvestingPro data, the stock currently trades at a P/E ratio of 15.75x, with analyst targets ranging from $70 to $87.

Dumoulin-Smith’s commentary highlighted the sale of Sempra Infrastructure Partners (SIP) assets as a positive move for the company’s credit support, although the transaction is not expected to be accretive based on Jefferies’ analysis, which contrasts with management’s expectations. The analyst suggested that focusing on Ecogas México and reducing SIP minority interest would likely yield the best outcome for Sempra Energy in the long run. Notably, InvestingPro data shows the company has maintained dividend payments for 28 consecutive years, with an impressive 8.4% dividend growth in the last twelve months.

The earnings outlook for Sempra Energy was described as challenging by the analyst, citing a higher corporate interest rate assumption following the downgrade of the company’s outlook and a decline in share price as contributing factors to marginally lower earnings estimates.

The primary reason for the lowered valuation, according to Dumoulin-Smith, stems from lower multiples for SIP assets. The analyst’s assessment reflects a cautious stance on the company’s financial performance and asset valuation in the near term.

In other recent news, Sempra Energy has announced plans to divest its natural gas distribution utility in Mexico, Ecogas, and a minority stake in Sempra Infrastructure Partners, aiming for completion within 12 to 18 months. This strategic move is expected to streamline operations, with the company reinvesting proceeds into its regulated utilities in Texas and California. Meanwhile, Moody’s has revised Sempra’s outlook from stable to negative, citing weak credit metrics and potential risks associated with these asset sales. Despite this, Sempra’s Baa2 rating remains affirmed, reflecting the potential for improved financial metrics from these strategic actions.

Citi has also adjusted its stance on Sempra, reducing the price target from $93 to $70 while maintaining a Neutral rating. UBS echoed this sentiment, holding a Neutral rating with a $78 target, highlighting investor caution until further clarity on the divestiture’s financial impact is provided. Additionally, Argan (NYSE:AGX), Inc. has appointed Lisa Larroque Alexander from Sempra to its Board of Directors, enhancing its governance with her extensive experience in the energy sector. These developments indicate a period of strategic repositioning and financial reassessment for Sempra amidst ongoing market and regulatory conditions.

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