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Why Has Sempra Energy’s Stock Corrected 3%?

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Market performance

Sempra Energy (SRE) corrected more than 3% when the company announced its 4Q15 earnings on February 26, 2016. Investors dumped Sempra because its management offered a downside earnings forecast for 2016 compared to 2015. Management expects SRE’s earnings to range from $4.80 to $5.20 per share in 2016.

So far in 2016, Sempra has risen nearly 3%. In the last 12 months, it has fallen more than 12%. The chart above shows the comparative stock movements of Sempra and its peers PG&E (PCG), Edison International, and the Utilities Select Sector SPDR ETF (XLU).

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Valuation

Sempra Energy is trading at an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 12.3x as of February 29, 2016. The EV-to-EBITDA multiple is a valuation metric that indicates whether a stock is overvalued or undervalued, regardless of its capital structure.

SRE’s five-year historical EV-to-EBITDA average stands at 11.2x. This shows that it’s trading at a premium to its own five-year historical EV-to-EBITDA valuation. SRE’s EV-to-EBITDA multiple for 2016, using estimated EBITDA for 2016, stands at 9.2x. This indicates expectations of higher EBITDA in 2016.

The utilities sector’s average EV-to-EBITDA multiple is 10.2x. As for Sempra’s peers, the EV-to-EBITDA multiple of CenterPoint Energy (CNP) is 4.5x, and Consolidated Edison’s (ED) multiple stands at 9.6x as of February 29, 2016.

Dividends

Last week, Sempra Energy’s management approved an 8% rise in the company’s annualized dividend, from $2.80 to $3.02 per share. As of February 29, 2016, Sempra has a yield of 3.2%.

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