Sempra
SRE
$83.41
+1.81%
Sempra is a diversified energy holding company that distributes natural gas and electricity to one of the largest utility customer bases in the United States, primarily through Southern California Gas and San Diego Gas & Electric, while owning 80% of Oncor, a major transmission and distribution business in Texas, and holding a controlling interest in Sempra Infrastructure Partners, which operates LNG facilities in North America and energy infrastructure in Mexico. The company occupies a distinctive position as a regulated-utility core wrapped around a higher-growth, contract-backed infrastructure and LNG platform, giving it a hybrid profile that blends bond-like cash flow stability with exposure to global energy export themes. The current investor narrative is dominated by a sharp divergence between the company's operational momentum and its stock performance: shares have fallen roughly 8.5% over the past year even as quarterly earnings have been strong, with Q2 2026 net income of $797 million and EPS of $1.22 more than doubling the prior-year quarter, and analysts remain broadly constructive. Attention is focused on the heavy capital expenditure program funding Texas and LNG growth, the resulting negative free cash flow, and balance-sheet leverage, alongside a SoCalGas preferred-stock retirement initiative aimed at simplifying the capital structure and enhancing financial flexibility at the parent level.…
SRE
Sempra
$83.41
Related headlines
Investment Opinion: Should I buy SRE Today?
Rating: Hold with a constructive bias. The core thesis is that SRE offers a regulated-utility base with contract-backed LNG and Texas growth optionality, and the analyst consensus Buy (mean 1.6) with a $97.81 average target implies 17.3% upside, but negative free cash flow and an 89% payout ratio cap near-term enthusiasm. The stock is a show-me story: investors are being asked to pay 32.1x trailing earnings for a utility while waiting for capex to convert into cash flow.
Supporting evidence includes the Q2 2026 EPS of $1.22 versus $0.71 a year earlier, gross margin expansion to 54.65% from 24.97%, and a forward P/E of 15.06x that is far below the trailing 32.1x. The 2.85% dividend yield and 0.56 beta add defensive appeal, and the $97.81 average target versus the $83.41 price provides a favorable risk/reward if execution holds. However, TTM free cash flow of -$5.895 billion and debt-to-equity of 1.15x are material offsets, and the stock's 24-point one-year relative underperformance shows the market is not yet rewarding the growth story.
Key risks that could invalidate the thesis are a further delay in LNG cash flows, a dividend coverage strain if earnings normalize, and multiple compression if rates stay elevated. The rating would upgrade to Buy if free cash flow turns positive or if the stock approaches the $76.21 52-week low with the forward P/E below 12x; it would downgrade to Sell if the payout ratio exceeds 100% or if capex guidance is raised again without a funding plan. Relative to its own history and the utility sector, SRE looks fairly valued on forward earnings but expensive on trailing metrics, so the verdict is fairly valued with a negative near-term momentum tilt.
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SRE 12-Month Price Forecast
SRE presents a balanced risk/reward: the forward P/E of 15.06x and $97.81 average target imply meaningful upside if the $7.18 EPS estimate is achieved, while the 0.56 beta and 2.85% yield offer defensive characteristics. However, negative free cash flow of -$5.895 billion and an 89% payout ratio mean the dividend and balance sheet are dependent on capex discipline and project execution. The stock's 24-point one-year lag versus the market suggests investors are waiting for proof of cash flow inflection rather than rewarding the growth narrative. I would upgrade to bullish if free cash flow turns positive or if the stock falls toward $76 with the forward P/E below 12x, and downgrade to bearish if the payout ratio exceeds 100% or a funding gap emerges.
Wall Street consensus
Most Wall Street analysts maintain a constructive view on Sempra's 12-month outlook, with a consensus price target around $97.81 and implied upside of +17.3% versus the current price.
Average Target
$97.81
0 analysts
Implied Upside
+17.3%
vs. current price
Analyst Count
—
covering this stock
Price Range
$83 - $118
Analyst target range
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Bulls vs Bears: SRE Investment Factors
The bear case currently has stronger near-term evidence: SRE has underperformed the S&P 500 by 24 percentage points over one year, free cash flow is deeply negative at -$5.9 billion, and the payout ratio of 89% leaves little dividend cushion. However, the bull case rests on a sharp Q2 2026 earnings inflection (EPS $1.22 vs. $0.71), a forward P/E of 15.1x that is far more reasonable than the 32.1x trailing multiple, and an analyst consensus Buy with a $97.81 average target implying 17.3% upside. The single most important tension is whether the heavy capex program funding Texas and LNG growth will translate into durable earnings and cash flow before balance-sheet leverage (debt-to-equity 1.15x) and negative free cash flow force a dilutive financing or dividend reset. If capex peaks and free cash flow inflects positive, the stock's 8.5% decline looks like an opportunity; if not, the 89% payout ratio and 32x trailing P/E are vulnerable.
Bullish
- Earnings inflected sharply in Q2 2026: Q2 2026 EPS of $1.22 more than doubled the $0.71 reported in Q2 2025, while net income rose to $797 million from $473 million. Gross margin expanded to 54.65% from 24.97% a year earlier, showing operating leverage despite flat revenue (revenue YoY growth of -0.1%).
- Analyst consensus remains Buy with upside: 18 analysts rate SRE a Buy (mean recommendation 1.6) with an average target price of $97.81, implying roughly 17.3% upside from the $83.41 current price. The high target of $118 implies 41.5% upside, and even the low target of $83 is essentially at the current price, suggesting limited downside in analyst expectations.
- Forward valuation looks reasonable: The forward P/E of 15.06x based on estimated EPS of $7.18 is well below the trailing P/E of 32.1x, reflecting expected earnings growth. The 2.85% dividend yield and 1.82x price-to-book provide income and asset backing for a utility with a 0.56 beta.
- Defensive low-beta profile: Beta of 0.56 means SRE has historically moved at roughly half the market's volatility, making it a portfolio stabilizer. The 1.59 current ratio indicates adequate short-term liquidity, and the regulated utility base (SoCalGas, SDG&E, Oncor) provides bond-like cash flow visibility.
Bearish
- Negative free cash flow of $5.9 billion: TTM free cash flow is -$5.895 billion, driven by a heavy capital expenditure program funding Texas transmission and LNG growth. This cash burn necessitates external financing and keeps the balance sheet stretched, with debt-to-equity at 1.15x.
- Severe relative underperformance: SRE is down 8.48% over one year versus a 15.53% gain for the S&P 500, a relative strength gap of -24.01 percentage points. The stock is also down 9.58% over three months and 11.28% over six months, underperforming the market by 12.27 and 18.76 points respectively.
- Earnings volatility and margin inconsistency: Quarterly EPS has swung from $0.12 in Q3 2025 to $1.59 in Q1 2026, and gross margin ranged from 25.8% to 54.7% across the last five quarters. Q4 2025 net income fell to $352 million with a 9.3% net margin, highlighting earnings quality concerns beneath the headline Q2 beat.
- Payout ratio of 89% strains dividend coverage: The payout ratio of 0.894 means dividends consume nearly 90% of earnings, leaving little room for error. Combined with negative free cash flow, the 2.85% yield may be less secure than it appears if earnings normalize or capex rises further.
SRE Technical Analysis
Beta
0.56
0.56x market volatility
Max Drawdown
-22.9%
Largest decline past year
52-Week Range
$76-$101
Price range past year
Annual Return
-8.5%
Cumulative gain past year
| Period | SRE Return | S&P 500 |
|---|---|---|
| 1m | +2.1% | +0.2% |
| 3m | -9.6% | +2.9% |
| 6m | -11.3% | +8.4% |
| 1y | -8.5% | +14.9% |
| ytd | -7.0% | +11.9% |
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SRE Fundamental Analysis
Quarterly Revenue
$3.0B
2026-06
Revenue YoY Growth
-0.1%
YoY Comparison
Gross Margin
54.6%
Latest Quarter
Free Cash Flow
$-5.9B
Last 12 Months
Revenue & Net Income Trends (2 Years)
Revenue Breakdown
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Valuation Analysis: Is SRE Overvalued?
PE
32.1x
Latest Quarter
vs. Historical
High-End
5-Year PE Range 12x~28x
vs. Industry Avg
N/A
Industry PE ~N/A*
EV/EBITDA
13.7x
Enterprise Value Multiple
Investment Risk Disclosure
Financial and operational risks center on the company's cash generation and balance sheet. TTM free cash flow is -$5.895 billion, meaning operations are not funding the capital expenditure program, and debt-to-equity stands at 1.15x. The payout ratio of 0.894 means dividends absorb nearly 90% of earnings, leaving minimal retained cash for debt reduction or unexpected costs. Earnings are also volatile: quarterly EPS ranged from $0.12 (Q3 2025) to $1.59 (Q1 2026), and Q4 2025 net income of $352 million represented a 9.3% net margin versus 26.6% in Q2 2026, so headline strength may not be repeatable.
Market and competitive risks include valuation compression and relative underperformance. SRE trades at 32.1x trailing earnings and 13.67x EV/EBITDA, rich for a utility, while the forward P/E of 15.06x depends on estimated EPS of $7.18 materializing. The stock has lagged the S&P 500 by 24.01 percentage points over one year and 18.76 points over six months, and its 0.56 beta offers downside protection but also limits upside participation in rallies. Regulatory outcomes in California and Texas, LNG project execution, and interest-rate sensitivity given the capital-intensive model are additional overhangs; the SoCalGas preferred retirement, while simplifying the structure, requires a cash premium outlay.
In a worst-case scenario, capex overruns and delayed LNG cash flows force a credit downgrade or equity issuance, compressing the multiple toward the 52-week low of $76.21, which is 8.6% below the current $83.41 price. A more severe outcome, such as a dividend cut or a regulatory disallowance, could push shares toward the analyst low target of $83 (roughly flat) or below, with the historical max drawdown of -22.92% implying a potential decline to approximately $64.30 from current levels. From $83.41, a drop to the 52-week low represents about -8.6%, while a repeat of the max drawdown would represent roughly -23%.
FAQ
The most severe risk is financial: TTM free cash flow of -$5.895 billion and debt-to-equity of 1.15x mean the company depends on external financing, and the 89% payout ratio leaves little dividend cushion. Second is earnings volatility, with quarterly EPS swinging from $0.12 in Q3 2025 to $1.59 in Q1 2026 and gross margin ranging from 25.8% to 54.7%. Third is relative underperformance and multiple compression: SRE has lagged the S&P 500 by 24.01 percentage points over one year, and its 32.1x trailing P/E is vulnerable if growth disappoints. Fourth is regulatory and project execution risk in California, Texas, and LNG, where adverse outcomes could impair the growth thesis.
The 12-month forecast has three scenarios: a 25% probability bull case targeting $105-$118 if free cash flow inflects positive and LNG projects enter service; a 55% probability base case targeting $90-$100 as earnings meet the $7.18 consensus and the stock approaches the $97.81 average target; and a 20% probability bear case targeting $64-$76 if capex overruns or a dividend cut occurs. The base case is most likely because it assumes steady execution without requiring a major re-rating. The key assumption is that capex remains funded without dilutive equity issuance and the dividend is maintained at the current 2.85% yield.
SRE looks fairly valued on forward earnings but expensive on trailing metrics. The forward P/E of 15.06x based on $7.18 estimated EPS is reasonable for a utility with growth optionality, while the trailing P/E of 32.1x and EV/EBITDA of 13.67x reflect a premium to typical utility multiples. Price-to-book of 1.82x and price-to-sales of 4.20x are moderate, but the negative PEG ratio of -0.84 signals the trailing earnings base is too low to support the multiple. The market appears to be pricing in successful execution of the capex program and LNG growth; if those materialize, the forward multiple is justified, but a delay would leave the stock exposed to multiple compression toward the 52-week low of $76.21.
SRE offers a reasonable risk/reward for patient investors: the $97.81 average analyst target implies 17.3% upside from $83.41, and the forward P/E of 15.06x is well below the 32.1x trailing multiple. The 2.85% dividend yield and 0.56 beta make it a defensive holding, and the Q2 2026 EPS of $1.22 versus $0.71 a year earlier shows earnings momentum. However, TTM free cash flow of -$5.895 billion and an 89% payout ratio mean the dividend and balance sheet depend on capex discipline, and the stock has lagged the S&P 500 by 24 points over one year. It is a good buy for income-focused investors with a 2-3 year horizon who can tolerate near-term volatility, but less attractive for those seeking immediate capital appreciation.
SRE is better suited to long-term holding than short-term trading. Its 0.56 beta and regulated utility base provide stability, but the negative free cash flow and capex cycle mean the growth payoff is likely 2-3 years out, and near-term momentum is negative with a 9.58% three-month decline. The 2.85% dividend yield rewards patience, and the forward P/E of 15.06x offers a reasonable entry point for long-term investors. A suggested minimum holding period is 2-3 years to allow LNG and Texas projects to generate cash flow; short-term traders face earnings volatility and a 3.27 short ratio that can amplify moves.
