Sempra Sells California Facility - Analyst Blog

Sempra Generation, a subsidiary of Sempra Energy (SRE), has sold its 50% interest in the Elk Hills Power generation facility to Occidental Petroleum Corporation (OXY). Occidental will pay Sempra cash plus year-end cash distribution totaling $179 million for the purchase.

The Elk Hills Power generation facility is a natural gas-fueled power plant, located near Bakersfield, California. The facility has an operating capacity of 550-megawatt. Sempra Generation and Occidental have jointly owned the facility, through a joint venture, since 2003. The sale transaction has been approved by the Federal Energy Regulatory Commission (FERC).

Sempra's decision to sell these assets is guided by its plans to invest heavily in its growing portfolio of alternative energy projects throughout the Western U.S. The company said the sale has come in the right time.

Sempra Generation, a unit of Sempra Energy, operates and maintains a fleet of natural gas-fueled power plants, and is a leading developer of solar and wind facilities that serve U.S. markets. Based in San Diego, California, Sempra Energy, along with its subsidiaries, engages in the development of energy infrastructure, operation of utilities, and provision of energy-related products and services to its worldwide consumers.

The adjusted earnings of Sempra Energy at the end of third-quarter 2010 were $1.08 per share compared with $1.27 per share in the year-ago comparable period. During the earnings release the company confirmed its earnings guidance for 2010 in the range of $3.15 to $3.40.

The Zacks Consensus Estimates for fourth quarter fiscal 2010, fiscal year 2010 and fiscal year 2011 are 93 cents per share, $3.65 per share and $4.15 per share, respectively.

Sempra Energy's diversified basket of businesses insulates its operations to a significant degree from regulatory rate risks, compared to integrated utility peers. We believe that Sempra Energy presents a lower risk profile relative to its peers, supported by stable utility earnings, steady progress at its LNG terminals and Sunrise Powerlink transmission line, ongoing installation of smart meter and renewable power projects in the Pacific Southwest.

However, on account of pending regulatory issues, and execution risk associated with ongoing infrastructure projects, we reiterate our Neutral recommendation on the Zacks #4 Rank (short-term Sell) Sempra Energy stock.

 
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