EUR 850.00 For Business Accounts Only

Morningstar | Cooperation agreement with activist shareholders buys management time.

Sempra Energy's investment opportunities at its regulated California and Texas utilities will remain the primary growth driver. We expect those utilities will receive 80% of the company's three-year, $15.2 billion capital plan. Both utilities could see an opportunity for combined $1.5 billion-$2.45 billion in additional investment opportunities.We consider California's regulatory environment less constructive than its peers, but its emphasis on distribution-related safety and reliability infrastructure upgrades provides an attractive growth opportunity. We view the regulatory environment in Texas as more constructive, which bodes well for the company's large transmission and distribution investment in the region. On a consolidated basis, we forecast 9% earnings growth through 2022, and 9% dividend increases through 2019, then 11% beginning in 2021. Sempra's investors have exposure to fast-growing natural gas infrastructure businesses that capitalize on the increasing incorporation of natural gas into the U.S. and Mexican economies as well as on the burgeoning integration of global natural gas markets. Sempra's diversity across the energy supply chain gives management flexibility to pursue opportunities as markets shift, particularly liquefied natural gas opportunities at Cameron Trains 4 and 5, ECA, and Port Arthur.Sempra's growing Latin American businesses are largely regulated or fee-based assets. These provide consistent cash flows in regions with favorable demographic and growth profiles, especially as natural gas makes inroads into the region's energy-starved economies. Sempra's business model brings more upside and risk than a pure-play regulated utility and exposure to growing Latin American economies.In mid-September, Sempra Energy announced a cooperation agreement with activist shareholders. The agreement allows the activists to replace two departing directors and include them on the company's strategic review subcommittee. The agreement also buys the current management time to prove that its current strategy has merits, with all parties agreeing to a standstill agreement and nondisparagement restrictions until Dec. 31, 2019.