- LNG export facility provides catalyst for stock.
- Large stock gains make the valuation questionable.
- Sempra isn't reliant on LNG exports unlike Cheniere Energy.
The recent news on the Cameron LNG subsidiary obtaining Federal Energy Regulatory Commission approval is a big deal for Sempra Energy (NYSE:SRE), but the company is actually so much more than the new export facility. The Cameron LNG project is the second to obtain approval from the U.S. regulators with the Sabine Pass owned by Cheniere Energy (NYSEMKT:LNG) already in the construction process. While the stock of Cheniere Energy has seen massive gains from the advancement of the LNG export facility and all of the associated long-term contracts, Sempra Energy has seen slow and consistent gains in the last three year.
In contrast to the $16 billion market cap of Cheniere Energy largely based on the promises of LNG exports, Sempra Energy is already a $25 billion conglomerate of energy companies with numerous other projects in the works. Sempra has a revenue base of over $10 billion based on operations of Southern California Gas Co., Sand Diego Gas & Electric, and several operations in Mexico, South America, and renewable power including both solar and wind. For example purposes, Cheniere Energy only reported revenue of $267 million in 2013. Though Sempra has lots of irons in the fire with expanding projects in Mexico that along with this LNG export facility could push the stock higher.
Long List Of Projects
Sempra Energy has numerous projects lined up from this year through 2018. In total, the company plans to spend nearly $15 billion on capital expenditures for operating companies along with another roughly $5.5 billion on joint ventures including the Cameron LNG export project. The project list ranges from advanced meters for SoCalGas, hydro facilities in Peru, pipelines in Mexico, and renewables projects. The goal is for these projects to contribute in annual earnings growth in the 8% to 10% range.
The company has expectations for other development projects including more pipelines with the PEMEX joint venture due to Mexico energy reform that could drive growth into the 9% to 11% range through 2019 when Cameron LNG fully contributes to earnings.
Strong Earnings With A problem
With the projects in place, the company is forecasting earnings to reach $6.00 to $6.50 in 2018, compared to the analyst estimates of around $4.50 this year. The number could be much higher in 2019 with the full contribution from Cameron LNG exports. The problem is that the stock price around $103 already reflects those growth projects. Even with the strong growth prospects, the stock already trades at 10x the very extended forecast. Another issue is that the company only owns 50.2% of the Cameron LNG project so the contribution won't likely match the excitement with the project.
Cheniere Energy proves that near-term profits aren't crucial to investors considering the long-term nature of the LNG projects. Analysts forecast the company to lose nearly $1.50 a share in 2015 even with the start-up of the Sabine Pass. Considering the scale and complexity of the project, one shouldn't be surprised with some eventual delays and hiccups to that project that could impact operations and hence earnings.
Sempra Energy's stock has had a decent run the last couple of years partially due to the recent announcement that the FERC approved the construction of the Cameron LNG export facility. The company though is so much more than the plans for LNG exports making the project less impacting to the bottom line than for Cheniere Energy. Sempra has an impressive list of projects around its California utilities, joint venture with PEMEX in Mexico, and in South America, yet the stock appears to have already budgeted the growth prospects into the stock price.
If an investor must play the LNG export concept, Sempra Energy is the safer bet over Cheniere Energy though both stocks appear too rich to own.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
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