Sempra Energy (NYSE:SRE) highlighted its two large utility operations, and the strategic change that the company will encounter in 2010 and beyond as it transitions to a company without an energy trading and commodities business. (Foresight and careful observation are the keys to trading this market. To learn more, read An Overview Of Commodities Trading.)

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Sempra Energy was involved in energy trading and related businesses in a joint venture with Royal Bank of Scotland (NYSE:RBS). Earlier this year, both companies reached an agreement to sell the European and Asian operations of this joint venture to JP Morgan (NYSE:JPM). The company plans to exit the balance of its energy trading and commodities businesses during 2010.

This sale and other investments by Sempra Energy will transform the company from one with a fairly volatile earnings stream to one of more predictability. From 2005 to 2009, 36% of the company's earnings were from its trading operations. Sempra Energy said that over the 2010-2014 time frame, trading would only contribute 3% of earnings, with 62% of earnings coming from the utility segment.

Utility Operations
Sempra Energy owns Southern California Gas Company and San Diego Electric and Gas, two of the largest utilities in the United States. The utilities are both heavily regulated, and provide services to about 24 million customers in California. Sempra Energy has a $10.6 billion capital plan over the next five years for its two utilities, including investments in biofuels and renewable energy.

The utility business grew earnings by 6% in 2009, and represents a fairly steady earnings stream due to its regulated rate of return business model.

Infrastructure Businesses
Sempra Energy also owns several businesses involved in energy infrastructure, including ones involved in the transport, storage and importation of natural gas.

Sempra LNG has two liquefied natural gas (LNG) terminals in operation. The company has an LNG receiving terminal in Baja California, and one in Louisiana. Sempra Energy has a long-term agreement with Eni SpA (NYSE:E) for 40% of the capacity of the terminal here. The company is planning a third LNG facility in Port Arthur, Texas.

Sempra Pipelines and Storage owns thousands of miles of pipeline and storage facilities for natural gas in the U.S. and Mexico. The company newest pipeline is the Rockies Express Pipeline (REX), which will stretch from Colorado to Ohio. Sempra Energy is building this pipeline along with Conoco Phillips (NYSE:COP) and Kinder Morgan Energy Partners, L.P. (NYSE:KMP).

Sempra Generation is in the wholesale power generation business, with a small fleet of natural gas fired plants generating 2600 megawatts of power. The company has three other alternative energy projects under construction, including wind energy facilities in Hawaii.

Earnings Guidance
Sempra Energy reaffirmed its earnings guidance for 2009 and 2010. The company said it would earn between $4.25 and 4.50 per share in 2010, and between $4.35 and $4.65 per share in 2011. While this is not spectacular growth, the company believes that its investments and strategic re orientation of the company will lead to earnings of between $5.10 and 5.40 per share, and further growth over a five-year period.

Bottom Line
Sempra Energy is set to transform itself to a company with a less volatile earnings stream, as it exits the energy trading and commodities business. This may be what investors have been waiting for. (To learn about the famous rogue traders, refer to Trading's 6 Biggest Losers.)

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Tickers in this Article: SRE, COP, E, JPM, RBS, KMP

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