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Why Did Sempra Energy Underperform Utilities?

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Utilities in 2016

So far, in 1Q16, utilities have gained more than what they lost last year. However, considering one-year returns, Sempra Energy (SRE) underperformed its peers due to volatile earnings, mainly from its international segment. So far, utilities have gained more than 12% while Sempra also rallied more than 10% in 2016.

The above chart shows the comparative stock price movement of utilities compared to the Utilities SPDR ETF (XLU).

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Price targets

According to Wall Street analysts, Sempra Energy has an estimated upside of 10.5% and a price target of $114. As of March 18, 2016, it was trading at $103.2.

Of the 16 analysts tracking Sempra, none of the analysts have a “sell” recommendation for Sempra. Ten analysts issued a “buy” rating and six analysts recommended a “hold” rating.

Comparatively, Pacific Gas & Electric (PCG) has an estimated upside of 2% with a price target of $60. Edison International (EIX) has a price target of $70. This implies a possible downside of 2% to its current market price of $71.4.

Outlook

Sempra Energy’s quarterly earnings will likely shape investors’ returns in 2016. It will be interesting to see how the dollar’s strength impacts Sempra’s international earnings this year. A stronger dollar marred Sempra’s earnings in 2015. Higher interest rates may not have much of a negative impact on Sempra’s earnings. Normal temperatures and healthy regulatory conditions can improve its earnings.

Moreover, if we try and look at a much longer-term horizon, Sempra is expected to be placed better once its Cameron LNG facility comes in service. Not only will it improve the parent’s earnings but Sempra Energy’s dependence on utility (VPU) operations will also be reduced substantially.

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