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Market Price (5/9/2017): $111.53/share; ST-Target: $160/share; NIV: $207/share
Strong 1Q17 is but a portend for even better things to come, we feel
1Q17 was strong, but we feel it is but an indication of more good things to come. We continue to look for outperformance from SRE with regards to its guidance in ST, MT and LT. Within next 12-months we look for Cameron 4&5 to get FID and begin construction. We believe SRE will use excess $2B in capital for Cameron 4&5. Even Port Arthur seems likely. We feel global supply/demand picture is tipping towards favoring supply again. We continue to support projects in Mexico; IEnova’s bilateral contract with industrial for 110MW solar should be 1st of many. 2020 AEPS guidance of $7.20-$7.80 seems low – only some 12% CAGR from 2016A AEPS results. SRE is expected to grow dividends 8%-9% to match. We believe that growth beyond 2020 would be equally strong as MT-growth. We support SDG&E’s move towards energy storage and more renewables, and SCG’s continuing emphasis on pipeline safety and reliability. Potential for LNG-to-power projects in oil-fired and coal-fired dominant regions like Central and South America and even Hawaii could be another future growth source. Chile seems most likely. Our estimates and NIV increased to reflect 1Q17 results. ST-Target remains at $160/share, while NIV/share moves up to $207/share from $203/share.