Four more analyst reports issued
on company's 1Q 2005 earnings
JP Morgan, Bank of America, Prudential and Harris Nesbitt issued analyst-research reports yesterday that covered Sempra Energy's first-quarter 2005 earnings. Here are excerpts:
JP Morgan: Messy 1Q Results Do Not
Derail Long-Term growth Strategy
"When we normalize the tax expense relative to our 1Q projection, EPS come in essentially in line with our estimate. Results at the CA utilities were above our expectations but favorably impacted by the tax benefit. When all special items are netted out for comparison sake, it appears net income at both SDG&E and SoCalGas declined modestly YOY.
"Adding back an $11M rate adjustment from the Phase II settlement at SoCalGas, which we expect to recur, net income jumped 16% YOY. Generation was the 1Q standout, where net income was up 31% YOY and $10MM above our projections, on increased power sales from the TX facilities. Results at Pipelines & Storage and LNG met our estimates. Commodities (trading) results continue to be volatile, with 1Q coming in well below our expectations.
"However, we remain relatively confident SRE will meet its '05 segment guidance given much of the 1Q margin shortfall in natural gas trading is expected to be reversed upon settlement of transactions later in the year. Moreover, weak margin performance has historically been followed by a sequential recovery. We are maintaining our '05E EPS of $3.20 until we get more definitive evidence of strong utilities performance over the summer."
Bank of America: 1Q05 Driven By Tax;
Underlying Earnings Broadly In Line
"Sempra Energy reported fully diluted 1Q05 earnings of $0.92/shr, inclusive of a $0.24/shr tax benefit. The favorable tax line was $0.15/shr ahead of our tax estimate, meaning underlying operating earnings of $0.77/shr were broadly in-line with our $0.79/shr estimate but below consensus of $0.89/shr.
"The timing of DSM incentives lowers Utility earnings, as SRE now expects $50mm of the pending $87mm to be awarded in 2Q/3Q05, with the balance realized over the next 36 months (we had given SRE full credit in '05). SRE Commodities' results were slightly ahead of our estimates, though substantially below 1Q04 due to a mismatch between economic earnings in its gas business and their accounting treatment. Our '05 $133mm net income estimate for this segment is ~10% below the low-end of guidance.
"Despite the tax-driven 1Q05 upside, our FY05 and FY06 estimates of $3.18/shr and $3.30/shr are unchanged. Our target price of $46 assumes a 14x multiple on our FY06 EPS estimate of $3.30, implying a potential return to target of ~19%, including SRE's below average 2.9% dividend yield."
Prudential: 1Q05 EPS Includes Tax
Benefits and Accounting Adjustments
"We were disappointed with the quality of earnings since 1Q05 EPS included a $0.24 benefit from the favorable resolution of income tax issues and $0.05 from an accounting adjustment at SoCal Gas. Lower trading margins from natural gas and metals trading were partly attributed to accounting rules concerning the timing of earnings recognition regarding physical transactions and associated financial hedges.
"Our Neutral Weight thesis is based on our view that while SRE lacks near-term positive catalysts, it trades at a steep, 17% forward PE discount to the sector average that should provide some downside support."
Harris Nesbitt: Lowering 2005/2006 Estimates
"Sempra Energy's 1Q05 adjusted EPS was $0.68 versus an adjusted $0.85 earned in 1Q04. Our adjusted EPS in 1Q05 excludes a $0.24 gain from the resolution of prior year income tax issues, while 1Q04 excludes several one-time items that cancel out. Earnings in 1Q05 were positively affected by improved results at its generation business and parent and other, offset by lower earnings from trading and financial operations.
"We are lowering our EPS estimate for 2005 to $3.05 and for 2006 to $3.03, promulgated by a more conservative outlook for trading operations ($150 million from our prior estimate of $200 million annually) following record results achieved in 2004. Our estimates had already reflected dilution from the conversion of equity units in May 2005.
"SRE trades at a 12% discount to our industry average P/E ratio for 2006, which we believe is appropriate given the heavy reliance on a volatile and unpredictable trading business. We reiterate our NEUTRAL rating on SRE."
