Texas Commission Okays Sempra's (SRE) Oncor Acquisition

Sempra Energy (NYSE:SRE) recently cleared the final regulatory red tape in its acquisition of Oncor, following the receipt of the Public Utility Commission of Texas’ (“PUCT”) approval for the deal. PUCT’s sanction is a significant milestone achieved by the company as it will facilitate the completion of the pending Energy Future Holdings Corp. (“EFH”) buyout, the parent company of Oncor.

What’s the Deal?

In August 2017, Sempra Energy announced that it is set to buy EFH and in turnTexas’ electrical grid giant Oncor Electric Delivery Company, LLC (Oncor) as well. Including Oncor’s debt, the enterprise value of Sempra's proposed offer for the Oncor buyout is $18.8 billion.

Notably, the company aims at acquiring 80% ownership of Oncor. Per the terms, Sempra Energy will maintain the existing independence of Oncor's board of directors, on completion of the transaction.

Impressively, per media sources, Sempra Energy practically snatched away Oncor from Warren Buffet’s Berkshire Hathaway Inc. (NYSE:BRKa) BRK.B that has been bidding for this regulated utility since July 2017.

Synergies from the Acquisition

The deal will add Texas’ largest electric transmission and distribution provider to Sempra Energy’s portfolio, thereby expanding its market in the state where it currently operates only 10 power plants. Apart from expanding the company’s regulated earnings base, this deal will boost Sempra Energy’s future growth in the Texas energy market and U.S. Gulf Coast region.

Meanwhile, management at Sempra Energy believes this transaction will enhance the company’s business mix and provide increased and more geographically diversified utility earnings.

Sempra Energy earlier announced that the buyout, expected to be over by the first half of 2018, will be accretive to its earnings, beginning in 2018. In line with this, during its fourth-quarter 2017 earnings call, the company declared that it expects the Oncor buyout to be accretive to its 2018 earnings by 20 cents per share.

With Oncor’s plants providing electricity to more than 3.4 million homes and businesses in Texas, no doubt its acquisition will significantly enhance Sempra Energy’s customer base and thereby its profit level.

We expect the company to duly complete the Oncor buyout within its expected time of first half of 2018, now that it has got through the last lap of regulatory approvals.

Price Performance

Sempra Energy has outperformed the industry it belongs to, over a year. During this period, the company’s shares have rallied 1.7% compared with the industry’s gain of 0.6%. This might have been driven by the systematic investments that Sempra Energy makes in its infrastructure development projects.

Zacks Rank & Key Picks

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

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

NewJersey Resources surpassed the Zacks Consensus Estimate in the last four quarters, with an average of 516.94%. The company’s current-year earnings estimates have improved by 43.6% over the last 30 days.

Just Energy surpassed the Zacks Consensus Estimate in the last four quarters, with an average beat of 173.11%. The company’s current-year earnings estimates have improved by 205.4% over the last 30 days.

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