Intrinsic value of Sempra Energy - SRE

Previous Close

$116.96

  Intrinsic Value

$29.40

stock screener

  Rating & Target

str. sell

-75%

  Value-price divergence*

-24%

Previous close

$116.96

 
Intrinsic value

$29.40

 
Up/down potential

-75%

 
Rating

str. sell

 
Value-price divergence*

-24%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

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 29.6

 

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
  15.00
  14.00
  13.10
  12.29
  11.56
  10.90
  10.31
  9.78
  9.30
  8.87
  8.49
  8.14
  7.82
  7.54
  7.29
  7.06
  6.85
  6.67
  6.50
  6.35
  6.22
  6.09
  5.98
  5.89
  5.80
  5.72
  5.65
  5.58
  5.52
  5.47
Revenue, $m
  0
  11,731
  13,374
  15,125
  16,984
  18,948
  21,014
  23,182
  25,450
  27,818
  30,286
  32,856
  35,530
  38,310
  41,200
  44,202
  47,322
  50,565
  53,937
  57,443
  61,091
  64,889
  68,843
  72,963
  77,258
  81,737
  86,411
  91,290
  96,385
  101,709
  107,273
Variable operating expenses, $m
 
  9,584
  10,893
  12,289
  13,770
  15,335
  16,981
  18,708
  20,515
  22,402
  24,369
  26,181
  28,311
  30,527
  32,829
  35,221
  37,708
  40,292
  42,978
  45,772
  48,679
  51,705
  54,856
  58,139
  61,561
  65,130
  68,854
  72,742
  76,802
  81,044
  85,478
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
  9,584
  10,893
  12,289
  13,770
  15,335
  16,981
  18,708
  20,515
  22,402
  24,369
  26,181
  28,311
  30,527
  32,829
  35,221
  37,708
  40,292
  42,978
  45,772
  48,679
  51,705
  54,856
  58,139
  61,561
  65,130
  68,854
  72,742
  76,802
  81,044
  85,478
Operating income, $m
  1,564
  2,147
  2,481
  2,837
  3,214
  3,613
  4,033
  4,474
  4,934
  5,415
  5,917
  6,676
  7,219
  7,784
  8,371
  8,981
  9,615
  10,274
  10,959
  11,671
  12,412
  13,184
  13,987
  14,824
  15,697
  16,607
  17,556
  18,548
  19,583
  20,665
  21,795
EBITDA, $m
  2,876
  3,819
  4,354
  4,924
  5,529
  6,169
  6,841
  7,547
  8,285
  9,056
  9,860
  10,697
  11,567
  12,472
  13,413
  14,390
  15,406
  16,462
  17,559
  18,701
  19,888
  21,125
  22,412
  23,753
  25,152
  26,610
  28,131
  29,720
  31,378
  33,112
  34,923
Interest expense (income), $m
  532
  587
  769
  963
  1,171
  1,391
  1,623
  1,868
  2,124
  2,393
  2,673
  2,965
  3,269
  3,586
  3,915
  4,257
  4,612
  4,981
  5,365
  5,764
  6,179
  6,611
  7,060
  7,528
  8,016
  8,524
  9,054
  9,607
  10,185
  10,788
  11,418
Earnings before tax, $m
  1,830
  1,560
  1,712
  1,873
  2,044
  2,223
  2,410
  2,606
  2,810
  3,023
  3,244
  3,711
  3,950
  4,198
  4,456
  4,724
  5,003
  5,292
  5,594
  5,907
  6,233
  6,573
  6,927
  7,296
  7,681
  8,083
  8,502
  8,940
  9,398
  9,877
  10,377
Tax expense, $m
  389
  421
  462
  506
  552
  600
  651
  704
  759
  816
  876
  1,002
  1,066
  1,133
  1,203
  1,276
  1,351
  1,429
  1,510
  1,595
  1,683
  1,775
  1,870
  1,970
  2,074
  2,182
  2,296
  2,414
  2,538
  2,667
  2,802
Net income, $m
  1,371
  1,139
  1,250
  1,367
  1,492
  1,622
  1,759
  1,902
  2,051
  2,207
  2,368
  2,709
  2,883
  3,065
  3,253
  3,449
  3,652
  3,863
  4,083
  4,312
  4,550
  4,798
  5,057
  5,326
  5,607
  5,900
  6,207
  6,526
  6,861
  7,210
  7,575

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
  54,563
  62,202
  70,351
  78,997
  88,130
  97,740
  107,822
  118,370
  129,384
  140,866
  152,820
  165,257
  178,187
  191,626
  205,591
  220,104
  235,187
  250,869
  267,178
  284,146
  301,808
  320,201
  339,364
  359,340
  380,173
  401,911
  424,603
  448,303
  473,064
  498,945
Adjusted assets (=assets-cash), $m
  47,437
  54,563
  62,202
  70,351
  78,997
  88,130
  97,740
  107,822
  118,370
  129,384
  140,866
  152,820
  165,257
  178,187
  191,626
  205,591
  220,104
  235,187
  250,869
  267,178
  284,146
  301,808
  320,201
  339,364
  359,340
  380,173
  401,911
  424,603
  448,303
  473,064
  498,945
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
  35,604
  40,589
  45,906
  51,548
  57,507
  63,778
  70,356
  77,239
  84,426
  91,918
  99,719
  107,834
  116,272
  125,041
  134,153
  143,623
  153,466
  163,698
  174,340
  185,412
  196,937
  208,939
  221,443
  234,478
  248,072
  262,257
  277,064
  292,529
  308,686
  325,574
Working capital, $m
  -2,817
  -540
  -615
  -696
  -781
  -872
  -967
  -1,066
  -1,171
  -1,280
  -1,393
  -1,511
  -1,634
  -1,762
  -1,895
  -2,033
  -2,177
  -2,326
  -2,481
  -2,642
  -2,810
  -2,985
  -3,167
  -3,356
  -3,554
  -3,760
  -3,975
  -4,199
  -4,434
  -4,679
  -4,935
Total debt, $m
  17,121
  21,974
  27,527
  33,451
  39,737
  46,376
  53,363
  60,692
  68,361
  76,368
  84,715
  93,406
  102,448
  111,848
  121,618
  131,771
  142,321
  153,287
  164,688
  176,544
  188,880
  201,720
  215,092
  229,023
  243,546
  258,692
  274,495
  290,993
  308,222
  326,223
  345,039
Total liabilities, $m
  34,815
  39,668
  45,221
  51,145
  57,431
  64,070
  71,057
  78,386
  86,055
  94,062
  102,409
  111,100
  120,142
  129,542
  139,312
  149,465
  160,015
  170,981
  182,382
  194,238
  206,574
  219,414
  232,786
  246,717
  261,240
  276,386
  292,189
  308,687
  325,916
  343,917
  362,733
Total equity, $m
  12,971
  14,896
  16,981
  19,206
  21,566
  24,059
  26,683
  29,435
  32,315
  35,322
  38,456
  41,720
  45,115
  48,645
  52,314
  56,126
  60,088
  64,206
  68,487
  72,940
  77,572
  82,394
  87,415
  92,646
  98,100
  103,787
  109,722
  115,917
  122,387
  129,146
  136,212
Total liabilities and equity, $m
  47,786
  54,564
  62,202
  70,351
  78,997
  88,129
  97,740
  107,821
  118,370
  129,384
  140,865
  152,820
  165,257
  178,187
  191,626
  205,591
  220,103
  235,187
  250,869
  267,178
  284,146
  301,808
  320,201
  339,363
  359,340
  380,173
  401,911
  424,604
  448,303
  473,063
  498,945
Debt-to-equity ratio
  1.320
  1.480
  1.620
  1.740
  1.840
  1.930
  2.000
  2.060
  2.120
  2.160
  2.200
  2.240
  2.270
  2.300
  2.320
  2.350
  2.370
  2.390
  2.400
  2.420
  2.430
  2.450
  2.460
  2.470
  2.480
  2.490
  2.500
  2.510
  2.520
  2.530
  2.530
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
  1,139
  1,250
  1,367
  1,492
  1,622
  1,759
  1,902
  2,051
  2,207
  2,368
  2,709
  2,883
  3,065
  3,253
  3,449
  3,652
  3,863
  4,083
  4,312
  4,550
  4,798
  5,057
  5,326
  5,607
  5,900
  6,207
  6,526
  6,861
  7,210
  7,575
Depreciation, amort., depletion, $m
  1,312
  1,672
  1,873
  2,087
  2,315
  2,555
  2,808
  3,073
  3,351
  3,641
  3,943
  4,021
  4,348
  4,688
  5,042
  5,409
  5,791
  6,188
  6,601
  7,030
  7,476
  7,941
  8,425
  8,929
  9,455
  10,003
  10,575
  11,172
  11,796
  12,447
  13,128
Funds from operations, $m
  2,409
  2,811
  3,123
  3,455
  3,807
  4,178
  4,567
  4,976
  5,402
  5,847
  6,311
  6,730
  7,231
  7,753
  8,295
  8,858
  9,443
  10,052
  10,684
  11,342
  12,026
  12,739
  13,482
  14,255
  15,062
  15,903
  16,782
  17,698
  18,656
  19,657
  20,703
Change in working capital, $m
  90
  -70
  -76
  -81
  -86
  -90
  -95
  -100
  -104
  -109
  -114
  -118
  -123
  -128
  -133
  -138
  -144
  -149
  -155
  -161
  -168
  -175
  -182
  -190
  -198
  -206
  -215
  -224
  -234
  -245
  -256
Cash from operations, $m
  2,319
  2,881
  3,198
  3,535
  3,892
  4,268
  4,662
  5,075
  5,507
  5,956
  6,425
  6,848
  7,354
  7,881
  8,428
  8,996
  9,587
  10,201
  10,839
  11,503
  12,194
  12,914
  13,664
  14,445
  15,259
  16,109
  16,997
  17,923
  18,891
  19,902
  20,959
Maintenance CAPEX, $m
  0
  -1,248
  -1,436
  -1,637
  -1,851
  -2,079
  -2,319
  -2,572
  -2,837
  -3,114
  -3,404
  -3,706
  -4,021
  -4,348
  -4,688
  -5,042
  -5,409
  -5,791
  -6,188
  -6,601
  -7,030
  -7,476
  -7,941
  -8,425
  -8,929
  -9,455
  -10,003
  -10,575
  -11,172
  -11,796
  -12,447
New CAPEX, $m
  -4,214
  -4,643
  -4,985
  -5,317
  -5,642
  -5,959
  -6,271
  -6,578
  -6,883
  -7,187
  -7,492
  -7,801
  -8,115
  -8,437
  -8,769
  -9,113
  -9,470
  -9,843
  -10,233
  -10,642
  -11,072
  -11,525
  -12,002
  -12,505
  -13,035
  -13,594
  -14,185
  -14,807
  -15,464
  -16,157
  -16,888
Cash from investing activities, $m
  -4,886
  -5,891
  -6,421
  -6,954
  -7,493
  -8,038
  -8,590
  -9,150
  -9,720
  -10,301
  -10,896
  -11,507
  -12,136
  -12,785
  -13,457
  -14,155
  -14,879
  -15,634
  -16,421
  -17,243
  -18,102
  -19,001
  -19,943
  -20,930
  -21,964
  -23,049
  -24,188
  -25,382
  -26,636
  -27,953
  -29,335
Free cash flow, $m
  -2,567
  -3,010
  -3,222
  -3,418
  -3,601
  -3,770
  -3,927
  -4,075
  -4,213
  -4,345
  -4,472
  -4,659
  -4,782
  -4,905
  -5,030
  -5,158
  -5,292
  -5,433
  -5,582
  -5,739
  -5,908
  -6,087
  -6,279
  -6,485
  -6,705
  -6,940
  -7,191
  -7,459
  -7,746
  -8,051
  -8,376
Issuance/(repayment) of debt, $m
  1,586
  5,202
  5,553
  5,924
  6,286
  6,640
  6,987
  7,329
  7,669
  8,007
  8,347
  8,691
  9,041
  9,400
  9,770
  10,153
  10,551
  10,966
  11,401
  11,857
  12,336
  12,840
  13,372
  13,932
  14,523
  15,146
  15,803
  16,497
  17,229
  18,001
  18,816
Issuance/(repurchase) of shares, $m
  -5
  786
  836
  857
  869
  871
  864
  850
  828
  800
  766
  555
  512
  465
  416
  364
  310
  254
  198
  140
  82
  23
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  3,200
  5,988
  6,389
  6,781
  7,155
  7,511
  7,851
  8,179
  8,497
  8,807
  9,113
  9,246
  9,553
  9,865
  10,186
  10,517
  10,861
  11,220
  11,599
  11,997
  12,418
  12,863
  13,372
  13,932
  14,523
  15,146
  15,803
  16,497
  17,229
  18,001
  18,816
Total cash flow (excl. dividends), $m
  633
  2,977
  3,167
  3,363
  3,554
  3,740
  3,924
  4,104
  4,283
  4,462
  4,642
  4,587
  4,772
  4,961
  5,156
  5,358
  5,568
  5,787
  6,017
  6,257
  6,510
  6,776
  7,092
  7,447
  7,818
  8,206
  8,613
  9,038
  9,484
  9,951
  10,440
Retained Cash Flow (-), $m
  -1,142
  -1,925
  -2,085
  -2,225
  -2,360
  -2,493
  -2,624
  -2,752
  -2,880
  -3,007
  -3,135
  -3,264
  -3,395
  -3,530
  -3,669
  -3,812
  -3,962
  -4,118
  -4,281
  -4,452
  -4,632
  -4,822
  -5,021
  -5,232
  -5,453
  -5,687
  -5,934
  -6,195
  -6,470
  -6,760
  -7,066
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
 
  1,053
  1,082
  1,138
  1,193
  1,247
  1,300
  1,352
  1,404
  1,455
  1,507
  1,323
  1,376
  1,431
  1,487
  1,546
  1,606
  1,669
  1,736
  1,805
  1,878
  1,955
  2,071
  2,215
  2,365
  2,519
  2,678
  2,843
  3,014
  3,191
  3,374
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
 
  965
  901
  854
  799
  738
  672
  604
  535
  468
  402
  289
  243
  200
  162
  129
  100
  77
  57
  42
  30
  21
  14
  10
  6
  4
  2
  1
  1
  0
  0
Current shareholders' claim on cash, %
  100
  97.4
  95.1
  93.0
  91.2
  89.6
  88.3
  87.0
  86.0
  85.1
  84.3
  83.7
  83.3
  82.9
  82.6
  82.3
  82.1
  82.0
  81.9
  81.8
  81.8
  81.8
  81.8
  81.8
  81.8
  81.8
  81.8
  81.8
  81.8
  81.8
  81.8

Sempra Energy operates as an energy services holding company worldwide. The company’s San Diego Gas & Electric Company segment transmits and distributes electricity and/or natural gas. As of December 31, 2015, this segment had approximately 1.4 million electric meters and 873,000 natural gas meters. Its Southern California Gas Company segment transmits, distributes, and stores natural gas. As of December 31, 2015, this segment had approximately 5.9 million customer meters. The company’s Sempra South American Utilities segment provides electricity distribution services through 13,458 miles of distribution lines, 185 miles of transmission lines, and 36 substations. Its Sempra Mexico segment owns and operates a natural gas-fired power plant and a wind generation facility in Baja California, Mexico; natural gas distribution systems; natural gas pipelines and propane systems; and liquefied natural gas regasification terminals. The company’s Sempra Renewables segment develops solar electric generation facilities in Nevada, Arizona, and California, as well as develops wind electric generation facilities in Mexico. Its Sempra Natural Gas segment owns and operates a natural gas distribution utility located in Mobile and Baldwin counties in Alabama; and a natural gas distribution utility in Forrest County, Mississippi. The company primarily serves residential, commercial, and industrial customers. Sempra Energy was founded in 1998 and is headquartered in San Diego, California.

FINANCIAL RATIOS  of  Sempra Energy (SRE)

Valuation Ratios
P/E Ratio 21.3
Price to Sales 2.9
Price to Book 2.3
Price to Tangible Book
Price to Cash Flow 12.6
Price to Free Cash Flow -15.4
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 15% 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 253.443 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 $29.6 billion.

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COMPANY NEWS

▶ Five Utilities Set To Outperform   [Aug-16-17 10:15AM  Barrons.com]
▶ SoCalGas Declares Preferred Dividends   [Aug-15-17 04:23PM  PR Newswire]
▶ Sempra beats 2Q profit forecasts   [Aug-04-17 11:42PM  Associated Press]
▶ Sempra Energy Value Analysis (NYSE:SRE) : August 4, 2017   [Aug-03-17 11:32PM  Capital Cube]
▶ Top Ranked Income Stocks to Buy for July 17th   [Jul-17-17 09:24AM  Zacks]
▶ ETFs with exposure to Sempra Energy : July 7, 2017   [Jul-07-17 03:32PM  Capital Cube]
▶ Trump urges 'energy dominance' as he promotes exports, jobs   [Jun-29-17 06:36PM  Associated Press]
▶ ETFs with exposure to Sempra Energy : June 22, 2017   [Jun-22-17 04:26PM  Capital Cube]
▶ Sempra Energy Declares Common Dividend   [Jun-21-17 02:23PM  PR Newswire]
▶ 5 Companies Reach 52-Week Highs   [01:14PM  GuruFocus.com]
▶ SoCalGas Declares Preferred Dividends   [May-30-17 02:15PM  PR Newswire]
▶ The 3 Best Dividend Stocks of Tomorrow   [May-20-17 02:35PM  Motley Fool]
▶ Sempra Energy Value Analysis (NYSE:SRE) : May 18, 2017   [May-18-17 02:18PM  Capital Cube]
▶ Sempra beats 1Q profit forecasts   [08:35AM  Associated Press]
▶ SDG&E Offers Tips For Safe Tree Planting This Arbor Day   [Apr-28-17 03:25PM  PR Newswire]
▶ Split results for stocks on Syria strike and weak jobs gains   [Apr-07-17 12:10PM  Associated Press]
▶ Sempra Energy To Webcast Analyst Conference April 5   [Mar-22-17 09:00AM  PR Newswire]
▶ Sempra Energy Stock Trades Ex-Dividend Tuesday   [Mar-20-17 11:22AM  Investopedia]
▶ Sempra Energys Dividend Profile, Inside Out   [Mar-15-17 07:37AM  Market Realist]
▶ [$$] How California Utilities Are Managing Excess Solar Power   [Mar-06-17 12:17AM  at The Wall Street Journal]
▶ [$$] How California Utilities Are Managing Excess Solar Power   [07:30AM  at The Wall Street Journal]
▶ Sempra Energy Appoints Two New Directors   [04:43PM  PR Newswire]
▶ [$$] Sempra Energy Increases Earnings Guidance   [10:11AM  at The Wall Street Journal]
▶ Sempra Energy Announces 2016 Earnings   [08:30AM  PR Newswire]
▶ Sempra Energy Raises Annualized Dividend By 9 Percent   [Feb-23-17 01:41PM  PR Newswire]
Stock chart of SRE 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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