Intrinsic value of Sempra Energy - SRE

Previous Close

$115.24

  Intrinsic Value

$34.81

stock screener

  Rating & Target

str. sell

-70%

Previous close

$115.24

 
Intrinsic value

$34.81

 
Up/down potential

-70%

 
Rating

str. sell

We calculate the intrinsic value of SRE stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 28.9

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  0.12
  18.10
  16.79
  15.61
  14.55
  13.59
  12.74
  11.96
  11.27
  10.64
  10.08
  9.57
  9.11
  8.70
  8.33
  8.00
  7.70
  7.43
  7.18
  6.97
  6.77
  6.59
  6.43
  6.29
  6.16
  6.04
  5.94
  5.85
  5.76
  5.69
  5.62
Revenue, $m
  0
  12,047
  14,070
  16,267
  18,633
  21,167
  23,862
  26,717
  29,726
  32,889
  36,203
  39,666
  43,280
  47,046
  50,965
  55,040
  59,277
  63,679
  68,255
  73,009
  77,952
  83,091
  88,437
  93,999
  99,791
  105,823
  112,109
  118,664
  125,501
  132,636
  140,086
Variable operating expenses, $m
 
  9,836
  11,448
  13,198
  15,084
  17,102
  19,250
  21,525
  23,923
  26,443
  29,084
  31,607
  34,487
  37,487
  40,610
  43,857
  47,233
  50,741
  54,387
  58,176
  62,114
  66,209
  70,469
  74,901
  79,516
  84,322
  89,332
  94,554
  100,002
  105,688
  111,624
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  8,637
  9,836
  11,448
  13,198
  15,084
  17,102
  19,250
  21,525
  23,923
  26,443
  29,084
  31,607
  34,487
  37,487
  40,610
  43,857
  47,233
  50,741
  54,387
  58,176
  62,114
  66,209
  70,469
  74,901
  79,516
  84,322
  89,332
  94,554
  100,002
  105,688
  111,624
Operating income, $m
  1,564
  2,211
  2,622
  3,069
  3,549
  4,064
  4,612
  5,192
  5,803
  6,446
  7,119
  8,059
  8,793
  9,558
  10,355
  11,183
  12,044
  12,938
  13,868
  14,834
  15,838
  16,882
  17,968
  19,098
  20,275
  21,500
  22,778
  24,109
  25,499
  26,948
  28,462
EBITDA, $m
  2,876
  3,922
  4,581
  5,296
  6,066
  6,891
  7,768
  8,698
  9,678
  10,707
  11,786
  12,914
  14,090
  15,316
  16,592
  17,919
  19,298
  20,731
  22,221
  23,768
  25,377
  27,051
  28,791
  30,602
  32,487
  34,451
  36,498
  38,631
  40,857
  43,180
  45,606
Interest expense (income), $m
  532
  587
  807
  1,046
  1,306
  1,586
  1,886
  2,205
  2,543
  2,899
  3,273
  3,665
  4,075
  4,503
  4,949
  5,412
  5,895
  6,396
  6,917
  7,459
  8,021
  8,606
  9,214
  9,847
  10,505
  11,191
  11,905
  12,649
  13,424
  14,234
  15,078
Earnings before tax, $m
  1,830
  1,624
  1,816
  2,023
  2,244
  2,478
  2,726
  2,987
  3,261
  3,547
  3,846
  4,394
  4,718
  5,056
  5,406
  5,770
  6,149
  6,542
  6,950
  7,375
  7,817
  8,276
  8,754
  9,251
  9,769
  10,310
  10,873
  11,461
  12,074
  12,715
  13,384
Tax expense, $m
  389
  439
  490
  546
  606
  669
  736
  806
  880
  958
  1,038
  1,186
  1,274
  1,365
  1,460
  1,558
  1,660
  1,766
  1,877
  1,991
  2,110
  2,234
  2,363
  2,498
  2,638
  2,784
  2,936
  3,094
  3,260
  3,433
  3,614
Net income, $m
  1,371
  1,186
  1,326
  1,477
  1,638
  1,809
  1,990
  2,180
  2,380
  2,589
  2,808
  3,208
  3,444
  3,691
  3,947
  4,212
  4,489
  4,776
  5,074
  5,384
  5,706
  6,041
  6,390
  6,753
  7,132
  7,526
  7,937
  8,366
  8,814
  9,282
  9,770

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  349
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  47,786
  56,034
  65,442
  75,659
  86,667
  98,449
  110,987
  124,263
  138,262
  152,972
  168,385
  184,495
  201,304
  218,818
  237,045
  256,001
  275,706
  296,184
  317,464
  339,579
  362,567
  386,470
  411,333
  437,206
  464,142
  492,200
  521,438
  551,924
  583,724
  616,912
  651,565
Adjusted assets (=assets-cash), $m
  47,437
  56,034
  65,442
  75,659
  86,667
  98,449
  110,987
  124,263
  138,262
  152,972
  168,385
  184,495
  201,304
  218,818
  237,045
  256,001
  275,706
  296,184
  317,464
  339,579
  362,567
  386,470
  411,333
  437,206
  464,142
  492,200
  521,438
  551,924
  583,724
  616,912
  651,565
Revenue / Adjusted assets
  0.000
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
Average production assets, $m
  30,961
  36,564
  42,703
  49,369
  56,552
  64,241
  72,422
  81,085
  90,220
  99,818
  109,875
  120,388
  131,356
  142,784
  154,678
  167,047
  179,905
  193,267
  207,153
  221,584
  236,584
  252,181
  268,405
  285,288
  302,865
  321,173
  340,252
  360,144
  380,895
  402,551
  425,162
Working capital, $m
  -2,817
  -554
  -647
  -748
  -857
  -974
  -1,098
  -1,229
  -1,367
  -1,513
  -1,665
  -1,825
  -1,991
  -2,164
  -2,344
  -2,532
  -2,727
  -2,929
  -3,140
  -3,358
  -3,586
  -3,822
  -4,068
  -4,324
  -4,590
  -4,868
  -5,157
  -5,459
  -5,773
  -6,101
  -6,444
Total debt, $m
  17,121
  23,043
  29,883
  37,310
  45,313
  53,879
  62,994
  72,645
  82,823
  93,517
  104,722
  116,434
  128,654
  141,386
  154,638
  168,419
  182,744
  197,631
  213,102
  229,180
  245,892
  263,270
  281,345
  300,155
  319,738
  340,135
  361,392
  383,555
  406,674
  430,801
  455,993
Total liabilities, $m
  34,815
  40,737
  47,577
  55,004
  63,007
  71,573
  80,688
  90,339
  100,517
  111,211
  122,416
  134,128
  146,348
  159,080
  172,332
  186,113
  200,438
  215,325
  230,796
  246,874
  263,586
  280,964
  299,039
  317,849
  337,432
  357,829
  379,086
  401,249
  424,368
  448,495
  473,687
Total equity, $m
  12,971
  15,297
  17,866
  20,655
  23,660
  26,877
  30,300
  33,924
  37,746
  41,761
  45,969
  50,367
  54,956
  59,737
  64,713
  69,888
  75,268
  80,858
  86,668
  92,705
  98,981
  105,506
  112,294
  119,357
  126,711
  134,370
  142,353
  150,675
  159,357
  168,417
  177,877
Total liabilities and equity, $m
  47,786
  56,034
  65,443
  75,659
  86,667
  98,450
  110,988
  124,263
  138,263
  152,972
  168,385
  184,495
  201,304
  218,817
  237,045
  256,001
  275,706
  296,183
  317,464
  339,579
  362,567
  386,470
  411,333
  437,206
  464,143
  492,199
  521,439
  551,924
  583,725
  616,912
  651,564
Debt-to-equity ratio
  1.320
  1.510
  1.670
  1.810
  1.920
  2.000
  2.080
  2.140
  2.190
  2.240
  2.280
  2.310
  2.340
  2.370
  2.390
  2.410
  2.430
  2.440
  2.460
  2.470
  2.480
  2.500
  2.510
  2.510
  2.520
  2.530
  2.540
  2.550
  2.550
  2.560
  2.560
Adjusted equity ratio
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273
  0.273

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,371
  1,186
  1,326
  1,477
  1,638
  1,809
  1,990
  2,180
  2,380
  2,589
  2,808
  3,208
  3,444
  3,691
  3,947
  4,212
  4,489
  4,776
  5,074
  5,384
  5,706
  6,041
  6,390
  6,753
  7,132
  7,526
  7,937
  8,366
  8,814
  9,282
  9,770
Depreciation, amort., depletion, $m
  1,312
  1,711
  1,958
  2,227
  2,517
  2,827
  3,157
  3,506
  3,874
  4,261
  4,667
  4,854
  5,297
  5,757
  6,237
  6,736
  7,254
  7,793
  8,353
  8,935
  9,540
  10,169
  10,823
  11,504
  12,212
  12,951
  13,720
  14,522
  15,359
  16,232
  17,144
Funds from operations, $m
  2,409
  2,896
  3,284
  3,704
  4,155
  4,636
  5,147
  5,686
  6,255
  6,851
  7,474
  8,062
  8,741
  9,448
  10,184
  10,948
  11,743
  12,569
  13,427
  14,319
  15,246
  16,210
  17,213
  18,257
  19,344
  20,477
  21,657
  22,888
  24,173
  25,514
  26,914
Change in working capital, $m
  90
  -85
  -93
  -101
  -109
  -117
  -124
  -131
  -138
  -145
  -152
  -159
  -166
  -173
  -180
  -187
  -195
  -203
  -210
  -219
  -227
  -236
  -246
  -256
  -266
  -277
  -289
  -302
  -315
  -328
  -343
Cash from operations, $m
  2,319
  2,981
  3,377
  3,805
  4,263
  4,752
  5,271
  5,818
  6,393
  6,996
  7,627
  8,221
  8,907
  9,621
  10,364
  11,136
  11,938
  12,771
  13,637
  14,537
  15,473
  16,446
  17,459
  18,513
  19,610
  20,754
  21,946
  23,190
  24,487
  25,842
  27,257
Maintenance CAPEX, $m
  0
  -1,248
  -1,474
  -1,722
  -1,991
  -2,280
  -2,590
  -2,920
  -3,270
  -3,638
  -4,025
  -4,430
  -4,854
  -5,297
  -5,757
  -6,237
  -6,736
  -7,254
  -7,793
  -8,353
  -8,935
  -9,540
  -10,169
  -10,823
  -11,504
  -12,212
  -12,951
  -13,720
  -14,522
  -15,359
  -16,232
New CAPEX, $m
  -4,214
  -5,603
  -6,139
  -6,666
  -7,183
  -7,688
  -8,181
  -8,663
  -9,135
  -9,599
  -10,057
  -10,513
  -10,968
  -11,428
  -11,894
  -12,369
  -12,858
  -13,362
  -13,886
  -14,431
  -15,000
  -15,597
  -16,224
  -16,883
  -17,577
  -18,308
  -19,079
  -19,892
  -20,751
  -21,656
  -22,611
Cash from investing activities, $m
  -4,886
  -6,851
  -7,613
  -8,388
  -9,174
  -9,968
  -10,771
  -11,583
  -12,405
  -13,237
  -14,082
  -14,943
  -15,822
  -16,725
  -17,651
  -18,606
  -19,594
  -20,616
  -21,679
  -22,784
  -23,935
  -25,137
  -26,393
  -27,706
  -29,081
  -30,520
  -32,030
  -33,612
  -35,273
  -37,015
  -38,843
Free cash flow, $m
  -2,567
  -3,870
  -4,237
  -4,584
  -4,910
  -5,216
  -5,501
  -5,766
  -6,011
  -6,240
  -6,455
  -6,722
  -6,916
  -7,103
  -7,287
  -7,471
  -7,656
  -7,845
  -8,041
  -8,246
  -8,462
  -8,691
  -8,934
  -9,193
  -9,470
  -9,766
  -10,083
  -10,423
  -10,785
  -11,173
  -11,587
Issuance/(repayment) of debt, $m
  1,586
  6,271
  6,840
  7,427
  8,003
  8,566
  9,115
  9,652
  10,177
  10,694
  11,205
  11,712
  12,220
  12,732
  13,251
  13,781
  14,325
  14,887
  15,471
  16,078
  16,712
  17,377
  18,075
  18,810
  19,583
  20,398
  21,257
  22,163
  23,119
  24,128
  25,192
Issuance/(repurchase) of shares, $m
  -5
  1,141
  1,243
  1,312
  1,367
  1,408
  1,433
  1,444
  1,441
  1,426
  1,400
  1,191
  1,145
  1,091
  1,030
  963
  891
  815
  736
  654
  570
  484
  398
  310
  222
  134
  45
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  3,200
  7,412
  8,083
  8,739
  9,370
  9,974
  10,548
  11,096
  11,618
  12,120
  12,605
  12,903
  13,365
  13,823
  14,281
  14,744
  15,216
  15,702
  16,207
  16,732
  17,282
  17,861
  18,473
  19,120
  19,805
  20,532
  21,302
  22,163
  23,119
  24,128
  25,192
Total cash flow (excl. dividends), $m
  633
  3,542
  3,846
  4,156
  4,460
  4,757
  5,047
  5,330
  5,608
  5,880
  6,150
  6,181
  6,449
  6,719
  6,993
  7,273
  7,560
  7,857
  8,165
  8,485
  8,820
  9,171
  9,539
  9,927
  10,335
  10,765
  11,218
  11,740
  12,334
  12,955
  13,605
Retained Cash Flow (-), $m
  -1,142
  -2,326
  -2,568
  -2,789
  -3,005
  -3,217
  -3,423
  -3,624
  -3,822
  -4,016
  -4,208
  -4,398
  -4,589
  -4,781
  -4,976
  -5,175
  -5,379
  -5,590
  -5,809
  -6,037
  -6,276
  -6,525
  -6,788
  -7,063
  -7,354
  -7,660
  -7,982
  -8,323
  -8,682
  -9,060
  -9,460
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  1,215
  1,278
  1,367
  1,455
  1,540
  1,624
  1,706
  1,786
  1,864
  1,942
  1,783
  1,860
  1,938
  2,017
  2,098
  2,181
  2,266
  2,355
  2,448
  2,544
  2,645
  2,752
  2,864
  2,981
  3,105
  3,236
  3,418
  3,652
  3,894
  4,145
Discount rate, %
 
  9.10
  9.56
  10.03
  10.53
  11.06
  11.61
  12.19
  12.80
  13.44
  14.12
  14.82
  15.56
  16.34
  17.16
  18.02
  18.92
  19.86
  20.86
  21.90
  23.00
  24.15
  25.35
  26.62
  27.95
  29.35
  30.82
  32.36
  33.97
  35.67
  37.46
PV of cash for distribution, $m
 
  1,114
  1,065
  1,026
  975
  912
  840
  762
  681
  599
  519
  390
  328
  271
  220
  175
  136
  104
  78
  57
  41
  28
  19
  13
  8
  5
  3
  2
  1
  1
  0
Current shareholders' claim on cash, %
  100
  96.2
  92.8
  89.9
  87.3
  85.0
  83.0
  81.3
  79.8
  78.4
  77.3
  76.4
  75.6
  75.0
  74.4
  73.9
  73.5
  73.1
  72.8
  72.6
  72.4
  72.2
  72.1
  72.0
  71.9
  71.9
  71.9
  71.9
  71.9
  71.9
  71.9

Sempra Energy is a holding company. The Company's principal operating units are Sempra Utilities, which includes its San Diego Gas & Electric Company (SDG&E), Southern California Gas Company (SoCalGas) and Sempra South American Utilities segments, and Sempra Infrastructure, which includes its Sempra Mexico, Sempra Renewables and Sempra LNG & Midstream segments. As of December 31, 2016, SDG&E's service area covered 4,100 square miles. Sempra South American Utilities operates Chilquinta Energia, which serves customers in the region of Valparaiso in central Chile. As of December 31, 2016, SoCalGas had natural gas franchises with the 12 counties and the 223 cities in its service territory. Sempra LNG & Midstream owns land in Simpson County, Mississippi Hub. Sempra LNG & Midstream owns land in Port Arthur, Texas. Sempra Renewables has operations, investments or development projects in the various United States markets.

FINANCIAL RATIOS  of  Sempra Energy (SRE)

Valuation Ratios
P/E Ratio 21
Price to Sales 2.8
Price to Book 2.2
Price to Tangible Book
Price to Cash Flow 12.4
Price to Free Cash Flow -15.2
Growth Rates
Sales Growth Rate 0.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 33.5%
Cap. Spend. - 3 Yr. Gr. Rate 10.4%
Financial Strength
Quick Ratio 0
Current Ratio 0.2
LT Debt to Equity 111.2%
Total Debt to Equity 132%
Interest Coverage 4
Management Effectiveness
Return On Assets 4%
Ret/ On Assets - 3 Yr. Avg. 4.2%
Return On Total Capital 4.8%
Ret/ On T. Cap. - 3 Yr. Avg. 4.9%
Return On Equity 11.1%
Return On Equity - 3 Yr. Avg. 11%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 36%
EBITDA Margin - 3 Yr. Avg. 33.2%
Operating Margin 15.3%
Oper. Margin - 3 Yr. Avg. 16.6%
Pre-Tax Margin 17.9%
Pre-Tax Margin - 3 Yr. Avg. 16.2%
Net Profit Margin 13.4%
Net Profit Margin - 3 Yr. Avg. 12.4%
Effective Tax Rate 21.3%
Eff/ Tax Rate - 3 Yr. Avg. 20.3%
Payout Ratio 50.1%

SRE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SRE stock intrinsic value calculation we used $10201 million for the last fiscal year's total revenue generated by Sempra Energy. The default revenue input number comes from 2016 income statement of Sempra Energy. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our SRE stock valuation model: a) initial revenue growth rate of 18.1% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 9.1%, whose default value for SRE is calculated based on our internal credit rating of Sempra Energy, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Sempra Energy.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of SRE stock the variable cost ratio is equal to 82%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for SRE stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Sempra Energy.

Corporate tax rate of 27% is the nominal tax rate for Sempra Energy. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the SRE stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for SRE are equal to 303.5%.

Life of production assets of 24.8 years is the average useful life of capital assets used in Sempra Energy operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for SRE is equal to -4.6%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $12971 million for Sempra Energy - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 251.117 million for Sempra Energy is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Sempra Energy at the current share price and the inputted number of shares is $28.9 billion.

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COMPANY NEWS

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▶ [$$] Energy Future, Elliott Challenge Vistra on Taxes   [Oct-13-17 10:12AM  The Wall Street Journal]
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▶ [$$] Sempra, Oncor Seek Deal Approval from Texas PUC   [Oct-05-17 06:46PM  The Wall Street Journal]
▶ Sempra Gets Less Messy With Texas   [10:15AM  Bloomberg]
▶ [$$] Sempra Revises Oncor Takeover Financing   [Oct-04-17 07:19PM  The Wall Street Journal]
▶ [$$] Temporary Truce in Fighting Over NextEra Breakup Fee   [Sep-27-17 05:01PM  The Wall Street Journal]
▶ What Led to Sempra Energys Sharp Fall in Dividend Yield?   [Sep-20-17 11:09AM  Market Realist]
▶ [$$] Judge to Reconsider NextEra-Oncor Breakup Fee   [Sep-19-17 02:20PM  The Wall Street Journal]
▶ A Look at Sempra Energys Dividend Statistics   [Sep-15-17 01:36PM  Market Realist]
▶ Sempra Energy Declares Common Dividend   [Sep-08-17 01:05PM  PR Newswire]
▶ PPL, XEL, and SCG: Any Steam Left in These Utilities?   [Sep-07-17 09:07AM  Market Realist]
▶ Court approves Sempras bid for Oncor ahead of Buffett   [04:12PM  American City Business Journals]
▶ More mega deals ahead?   [10:37AM  CNBC Videos]
Financial statements of SRE
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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