Morningstar

Sempra Earnings: Constructive Texas Legislative Improvements Likely to Support Additional Growth

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Securities In This Article
Sempra
(SRE)

We are maintaining our $149 per share fair value estimate for Sempra Energy SRE after the company reported second-quarter operating earnings of $1.88 per share compared with $1.98 in the same year-ago period. Management reaffirmed its 2023 EPS guidance range of $8.60 to $9.20 and its 2024 EPS guidance of $9.10 to $9.80, both in line with our estimate. The company reaffirmed its long-term earnings growth guidance range of 6% to 8%, in line with our 7% estimate.

After reaching 2-star territory in September last year, Sempra now trades at a 4% discount to our fair value estimate.

In Texas, multiple constructive legislative bills allow for shorter permit timelines and approvals; multiyear resiliency plans with recovery through rate riders; support for new transmission in high-growth areas; and greater use of the utility’s temporary electric energy facilities.

We view these bills positively because they should reduce regulatory lag and support more investment in Sempra’s high-growth service territory. We expect these opportunities will lead to an increase in the unit’s current $19 billion capital investment plan during the company’s annual capital expenditure review later this year.

Supporting the rest of the company’s five-year $40 billion capital investment plan are investments in California focusing on safety and reliability as part of the state’s aggressive clean energy transition. A decision on the California utilities’ general rate case is expected in the second quarter of next year. We continue to expect a constructive outcome.

Sempra Infrastructure is progressing well on ECA LNG Phase 1 and Port Arthur LNG Phase 1. We think infrastructure investments are a positive for Sempra, but we think investors should remain focused on key regulatory outcomes and growth opportunities at its regulated utilities, which drive most of Sempra Energy’s earnings.

The company announced a 2-for-1 stock split on Aug. 21, which has no effect on our fair value estimate.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Andrew Bischof, CFA

Strategist
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Andrew Bischof, CFA, CPA, is a strategist, AM Resources, for Morningstar*. He covers electric, gas and water utilities. He conducts comprehensive research and analysis on his covered companies to provide insights into investment opportunities. He assesses financial statements, competitive advantages, and economic indicators to determine a stock’s intrinsic value. He is a five-time Morningstar Outstanding Research Achievement award winner, which recognizes thought leadership and equity research quality as voted on by senior management.

Before joining Morningstar in 2011, Bischof worked in treasury for Mead Johnson Nutrition. Previously, He was a group audit officer for Bank of America in Chicago, and before that, an auditor for Ernst & Young.

Bischof holds a bachelor’s degree in business administration and accounting and a master’s degree in accounting from the University of Wisconsin. He also holds a master’s degree in business administration, with a concentration in finance, from Indiana University’s Kelley School of Business. Additionally, he holds the Chartered Financial Analyst® and Certified Public Accountant designations.

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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