Sempra Energy (NYSE: SRE) has been one of the fastest growing utility companies in America. The company's ventures into South American markets, Liquefied Natural Gas exports, and renewables gives it a growth platform that few other utility companies can replicate. This past quarter, that platform became even more impressive thanks to the acquisition of Oncor.
Management's plans for Oncor look so ambitious that it's easy to overlook Sempra's less-than-stellar quarter. Let's take a look at the company's most recent earnings results and what investors should be looking for with this stock.
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By the numbers
OK, these numbers look pretty weird. Let's break them down and try to make sense of it. The first thing to note is that Sempra's business has a lot of seasonal variability to it -- that's just the nature of natural gas utilities. A vast majority of residential gas sales come in the winter months for heating, so don't look at sequential quarter results.
There are two reasons for the significant discrepancy between this most recent quarter's result and the prior-year number. This time last year, Sempra realized $362 million in after-tax gains related to an acquisition in Mexico and a gain on the sale of natural gas distribution assets in the Gulf Coast region. In this most recent quarter, the company took a $208 million after-tax impairment related to cost recovery for the 2007 San Diego wildfires. Absent these charges, the company's adjusted earnings were pretty much flat.
These numbers don't seem to be very important when compared to the big news item this past quarter. That was the announcement that Sempra agreed to buy Texas utility company Oncor for $9.45 billion. The deal came after Berkshire Hathaway's bid was rejected by the creditor of Oncor's parent company, Energy Future Holdings Corp. Sempra expects the deal to close in the first half of 2018. While the acquisition is still pending, Sempra said in its earnings call presentation that it plans to spend about $8.4 billion in capital improvements between 2018 and 2022.
What management had to say
Here's CEO Debra Reed on Sempra's strategic reasons for buying Oncor and how it fits into the overall business:
What a Fool believes
Even before this deal, an investment in Sempra was likely more focused on the company's future than what it is today. The addition of Oncor and the growth opportunities it has there adds to that case. With Oncor coming into the fold in 2018 and its Cameron LNG export facility on its heels, Sempra is likely going to post some sizable net income gains over the next 18 months or so.
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