SRE

Of course. Here is a comprehensive analysis of SRE.

**Overall Analysis & Recommendation**

Based on a review of its technical position, fundamentals, and valuation, SRE faces significant headwinds despite its defensive market posture. The stock's recent price appreciation has pushed it toward the higher end of its 52-week range, while its underlying financial performance reveals substantial profitability pressures and a valuation that appears difficult to justify. The primary concern is a severe compression in net income due to an unusually high tax rate, overshadowing stable operational revenue.

Technically, the stock is showing signs of near-term exhaustion after its recovery, underperforming the market recently. Fundamentally, while revenue growth is positive, the collapse in quarterly net income and weak returns on equity and assets indicate inefficiency. The valuation multiples are exceptionally high without the corresponding earnings growth to support them, making the stock look expensive.

*Recommendation: HOLD* *For current investors, SRE's low-beta, defensive nature may offer stability, but its rich valuation and recent profit challenges suggest limited upside potential in the near term. New investors should wait for a more attractive entry point or for clearer signs of sustained earnings recovery and improved cash flow before considering a position. The current price appears to reflect optimism not yet borne out by fundamental results.*

RockFlow Model Forecast: Three Scenarios for 2026

Based on the provided analysis, here is a 12-month outlook for SRE (Sempra Energy):

12-Month Outlook for SRE

The outlook for SRE over the next year is characterized by stability but limited upside, with investor returns likely relying more on its defensive qualities and dividend than significant price appreciation. A key positive catalyst is its predictable, regulated utility business, which provides a stable revenue base in varying economic conditions. However, the primary risk remains its weak profitability, evidenced by severe net income compression from a high tax rate, which challenges its current elevated valuation. In the absence of a specific analyst target, a plausible 12-month price range appears to be $85-$95, suggesting the stock is fairly valued at its current level near $90, with potential resistance at the upper end of its recent trading range unless fundamental earnings improve.

Wall Street Consensus

Most Wall Street analysts are optimistic about SRE's 12-month outlook, with consensus target around $91.32, indicating expected upside potential.

Overall, SRE has investment potential but also faces challenges. Here are key factors to weigh before investing.

SRE has demonstrated strong absolute gains over the past year but has recently underperformed the broader market. The stock trades significantly above its 52-week low after a substantial recovery, characterized by its low-beta, defensive profile.

In the short term, SRE shows mixed performance with a modest 1.48% gain over one month that was offset by a -1.47% loss over three months. More notably, its -4.84% relative strength versus the market indicates clear underperformance over the recent quarter.

Currently priced at $90.29, SRE resides in the upper portion of its 52-week range ($61.90 - $95.72), approximately 84% of the way to its high. Given this positioning and the significant distance from its low, the stock is not oversold but appears to be approaching a potentially overbought level relative to its recent trading band.

Revenue & Profitability: SRE delivered sequential revenue growth to $3.18 billion in Q3 2025, improving gross margin to 25.8%. However, profitability was severely impacted this quarter, with net income collapsing to $95 million (2.98% net margin) from $473 million in Q2 due to a significantly higher effective tax rate of 76.3%, which heavily pressured bottom-line results despite stable operating performance.

Financial Health: The company maintains a reasonable debt-to-equity ratio of 1.08 but faces cash flow constraints, with a negative free cash flow per share of -$2.22 and minimal cash reserves (cash ratio of 0.006). The interest coverage ratio of 1.56 indicates only modest capacity to service debt from operating earnings, suggesting potential liquidity pressure despite moderate leverage levels.

Operational Efficiency: Operational efficiency metrics reveal challenges, with extremely low returns (ROE of 0.30%, ROA of 0.09%) and weak asset utilization (asset turnover of 0.03). While the cash conversion cycle of 19.7 days shows reasonable working capital management, the low fixed asset turnover of 0.06 suggests significant capital intensity and potential underutilization of long-term assets in generating revenue.

Based on the provided metrics, SRE appears significantly overvalued. The forward P/E ratio of 154.6 and EV/EBITDA of 54.3 are exceptionally high, indicating the market has priced in substantial future growth expectations. However, this optimism is contradicted by a negative PEG ratio of -1.86, which signals that earnings growth projections are poor or negative, making the current valuation multiples difficult to justify. The elevated PS ratio of 4.51 further supports an expensive valuation relative to the company's sales.

A peer comparison cannot be completed as industry average data is unavailable. This lack of contextual benchmarks prevents a definitive assessment of whether SRE's premium valuation is typical for its sector or an outlier. For a more robust analysis, comparing these ratios against utilities or energy infrastructure industry averages would be necessary to determine its relative valuation position.

Volatility risk for SRE appears modest relative to the broader market, as evidenced by its Beta of 0.746, indicating less sensitivity to market swings. The stock's one-year maximum drawdown of -26.84% shows it has experienced notable declines, but this is not exceptionally severe for its sector.

Other risks are somewhat mitigated by extremely low speculative pressure, as indicated by the "None" short interest. This suggests a general absence of negative market sentiment and a potential for stable sentiment-driven price action, though standard operational and regulatory risks inherent to the utility sector remain applicable.