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Sempra Energy (SRE) Completes Oncor Takeover for $18.8B


Sempra Energy SRE recently closed the acquisition of Energy Future Holdings Corp., the parent company of Oncor. Energy Future had 80% indirect ownership in Oncor. The buyout now has thus transferred Oncor’s 80% stake to Sempra Energy

Details of the Deal

The deal has a total enterprise value of about $18.8 billion, including Oncor’s debt and a cash worth $9.45 billion.

Notably, the company entered into the buyout agreement on Aug 21, 2017 and was recently granted regulatory approvals from The Public Utility Commission of Texas and the U.S. Bankruptcy Court for the District of Delaware. Post the buyout, Allen Nye — Oncor’s senior vice-president will be its new CEO, succeeding Bob Shapard, who becomes the company’s new chairman.

Benefits of the Buyout

With the completion of the Oncor takeover, Sempra Energy has the largest U.S. customer base. Moreover, the buyout has added Texas’ largest electric transmission and distribution provider to Sempra Energy’s portfolio, thereby expanding its market size where it currently operates only 10 power plants. Notably, Oncor’s plants provides electricity to more than 3.4 million homes and businesses in Texas and with its acquisition Sempra Energy’s customer base is thus poised to grow.

Apart from expanding the company’s regulated earnings base, the deal is poised to enhance Sempra Energy’s business mix and boost its future growth in the Texas energy market and U.S. Gulf Coast region.

Moreover, per terms of the agreement, Sempra Energy will support Oncor's plan to invest $7.5 billion of capital over a five-year period to expand and reinforce its transmission and distribution network. Such planned investments will enhance the service territories of Oncor and thereby enable Sempra Energy to profitably grow in size and numbers.

Sempra Energy earlier anticipated that the buyout would be accretive to the company’s earnings post acquisition. In line with this, during its fourth-quarter 2017 earnings call, the company announced that it expects the Oncor buyout to be accretive to its 2018 earnings by 20 cents per share. We expect the company’s upcoming results to duly reflect these positive synergies from the Oncor buyout.

Price Performance

Sempra Energy has marginally underperformed the broader industry over a year. During this period, the company’s shares remained muted versus the industry’s gain of 1.0%. The underperformance may have been caused by stiff competition throughout the U.S. and the company’s exposure to foreign currency risks.

Zacks Rank & Key Picks

Sempra Energy currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the same space are Just Energy Group, Inc. JE NewJersey Resources Corporation NJR and Atmos Energy Corporation ATO. While Just Energy and NewJersey Resources sport a Zacks Rank #1 (Strong Buy), Atmos Energy carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Just Energy surpassed the Zacks Consensus Estimate in two of the last four quarters, with an average surprise of 173.11%. The Zacks Consensus Estimate for 2018 earnings rose by 76 cents to $1.13 in the last 90 days.

NewJersey Resources surpassed the Zacks Consensus Estimate in three of the last four quarters, with an average surprise of 516.94%. The Zacks Consensus Estimate for 2018 earnings rose by 77 cents to $2.60 in the last 90 days.

Atmos Energy surpassed the Zacks Consensus Estimate in three of the last four quarters, with an average surprise of 10.46%. The Zacks Consensus Estimate for 2018 earnings rose by a penny to $3.99 in the last 90 days.

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