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Sempra Energy or Edison International: Which Could Emerge Strong?

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Sempra Energy and Edison International

In the last few years, the wildfires in California changed the landscape for utilities operating in the state. PG&E (PCG), one of the largest utilities that serves more than 16 million people, filed for the Chapter 11 bankruptcy last week. The utility faces ~$30 billion in potential liabilities associated with wildfires in 2017 and 2018. We’ll discuss how Sempra Energy (SRE), now the biggest utility by market cap in California, and Edison International (EIX) are placed currently and in the future.

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What’s driving the companies?

Edison International stock has lost ~20% in the last three months since the deadly wildfires in November. The utility is under investigation for its alleged role in the wildfires last year. However, Edison International’s dividend increase in December could indicate that it’s relatively well placed compared to PG&E. Sempra Energy stock has fallen marginally in the last three months. Broader utilities (XLU) have risen marginally during the same period.

Based on the earnings from the nine months ending September 30 and the fourth-quarter estimates, Sempra Energy’s EPS growth is expected to be flat in 2018—compared to 2017. Both of these utilities have been growing flattish in the last three years. They have underperformed utilities at large. However, analysts expect close to double-digit year-over-year EPS growth for Edison International and Sempra Energy in 2019. Sempra Energy’s first three trains at the Cameron LNG facility are expected to be in service in the first quarter, which will likely have a positive impact on its earnings.

Last week, Sempra Energy said that it has started the process of selling its equity interests in its South American businesses. Sempra Energy will likely report its fourth-quarter earnings on February 25. Edison International is expected to report its earnings on February 28.

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