Citigroup Smith Barney: Tracking SRE's Trading Earnings
"We are adjusting our 2005 EPS estimate to $3.29 to take into account 1Q'05 results and about $62 million in pretax performance based awards (DSM settlement) that SRE will book during the year. We are adjusting our 2006 & 2007 EPS estimates to $3.39 and $3.49, respectively, after adding $25 million (over 24 months) in PBRs and making adjustments to interest expense. Maintain $44 price target.
"After conducting further research into SRE's trading results over the last 13 quarters, we have established some parameters around the gas trading business to help us understand the volatility we are likely to experience from this business going forward. Some of these indicators and assumptions, which are mostly related to the natural gas trading book, include: Comparing natural gas prices at the end of the current quarter to the previous quarter and monitoring the unrealized revenue stream from the trading book excluding exchange related derivatives.
"Our analysis lacks precision given the nature of the business and may not be helpful during shoulder months when SRE is injecting gas into storage."
Jefferies: 1Q05 Operating EPS of $0.68 Below Expectations; Reduce Estimates
"We are maintaining our Hold rating on Sempra Energy with a price target of $41.00 (previously $42.00). Based on Friday's closing price of $39.13, our $41.00 target represents 12-month price appreciation potential of 4.8% and 12-month total return potential of 7.8%, including the company's current yield of 3.0%.
"Based on P/E valuation, we value Sempra at 40.50. Applying a 15.3 P/E multiple (equivalent to a 5% premium to our average electric utility multiple for 2005) to projected utility earnings of $1.72 per share results in $26.35. Applying a 10.0x multiple to remaining non-regulated earnings of $1.43 results in $14.30, for a total of $40.50.
Sempra's 1Q05 operating EPS was $0.68, below our estimate of $0.85 and consensus of $0.88, and versus $0.96 earned a year ago. We have excluded from 1Q05 earnings a $0.24 ($59 million) benefit from the favorable resolution of prior year federal and state income tax issues at the parent and the California utilities.
"We are reducing our 2005 EPS estimate by $0.15 to $3.05. The revision largely reflects first-quarter results and the DSM settlement. We are reducing our 2006 estimate by $0.15 to $3.15. The revision reflects the effects of the DSM settlement, lower assumed tax credits and other modest adjustments to our forecast model."
