Editor's Note: An earlier version of this story misstated the amounts of Sempra Energy's capital expenditures allocated for utilities.
While most utility stocks have floundered this year, with the Dow Jones Utility Average down 3.4% since Jan. 1, Sempra Energy (SRE) has electrified investors with a hefty 13.5% gain. "Sempra is impressively running on all cylinders, with its diversified operations doing great," says Lasan Johong, utilities analyst at RBC Capital Markets.
Sempra is his top pick in energy, rated overweight. (RBC has done business with Sempra.) The stock, which hit a 52-week low of 36 on Mar. 9, has leapt to 48. Sempra's regulated Southern California Gas and San Diego Gas & Electric provide electricity and natural gas in Southern California. Among its other more exciting units, though still not as profitable as the utilities, are liquefied natural gas (LNG) terminals in North America, energy and metals trading, and gas pipelines and storage facilities in the U.S. and Mexico. Sempra will now spend $12 billion on capital investments in the next five years, 75% of which will go to its utilities vs. 60% of the $10 billion spent in the past five years.
One project is a $1.9 billion transmission line. Regulators allow Sempra's utilities to achieve returns on equity of as much as 11%, Snell says.
Christopher Muir of Standard & Poor's (MHP) has raised his 2009 earnings forecast to $4.60 a share and his 2010 to $5.03. He rates Sempra a strong buy, with a 12-month target of 61.
Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.