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Why Is Sempra Targeting Elaborate Earnings Growth?

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Mar. 23 2016, Updated 9:07 a.m. ET

Earnings growth

Sempra Energy’s (SRE) core electric and gas segment is expected to be the slowest-growing segment after its starts its LNG (liquefied natural gas) export facility. This export terminal at Cameron is expected to be the earnings driver in the next few years. It should earn $300–$350 million annually. Sempra Energy forecast that its earnings will grow by an ambitious 11% in the longer term. Its earnings from utility operations are expected to grow by 4%–5%.

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Earnings drivers

Sempra provided flat to negative earnings guidance for 2016 based on its LNG terminal development and the weak outlook from its international segment. Currency depreciation is expected to continue dragging Sempra’s consolidated earnings due to its presence in Chile and Peru.

In 2015, rate cases led the earnings growth at Southern California Gas Company or SoCalGas. Sempra expects to increase rates at its SoCalGas and San Diego Gas & Electric subsidiaries because the rate cases are in the final stage with the regulators. A decision on the proposal is expected in March 2016.

Aliso Canyon gas leak

Sempra Energy’s gas leak incident at Aliso Canyon shouldn’t impact its earnings much. Its $1 billion insurance policy covers costs related to repairs and lawsuits. This leak was permanently plugged in February 2016 after it started in October last year. An estimated 1,000,000 barrels of gas per day are released from SoCalGas’ storage facility.

Sempra’s peers and their international presence

The dollar’s rally last year dented the earnings of many utilities (XLU) with an international presence. Duke Energy (DUK) and PPL Corporation (PPL) are utilities that have significant operations in Latin America and the United Kingdom, respectively. AES Corporation (AES) also operates in multiple countries.

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