Sempra Energy (SRE) is a utility in motion: It's partly switching from a utility into an acquirer and developer of energy assets. And its stock is energized, climbing from 43 in mid-June to 55.64 on Jan. 10. Michael Heim of A.G. Edwards (AGE), which has done business with Sempra, rates it a "buy," with a 12-month target of 60, and he believes the makeover should push the price higher. Currently, the stock is trading below its peer group. But Heim sees forces that could further lift Sempra. It owns San Diego Gas & Electric, with 1.3 million customers, and Southern California Gas, a distributor, with 6.4 million. Its other operations are unregulated, including energy trading, liquefied natural gas (LNG) terminals in North America, and gas pipelines and storage facilities in the U.S. and Mexico. Sempra may form a master limited partnership for these, he says. Paul Justice of Morningstar (MORN) says: "We're particularly excited" by its entry into LNG and partnership with Kinder Morgan (KMI) to build a pipeline from the Rockies to the Midwest. Both ventures should provide stable cash flow for years, he says.
Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them. By Gene G. Marcial