Sempra
SRE
$81.20
-0.14%
Sempra is a diversified utility holding company that distributes natural gas and electricity to one of the largest customer bases in the United States through Southern California Gas and San Diego Gas & Electric, while also owning 80% of Oncor, a major Texas transmission and distribution business, and a 25% stake 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 with an unregulated, growth-oriented infrastructure arm, giving it a hybrid profile that blends stable rate-base earnings with commodity-linked and export-oriented cash flows. The current investor narrative is dominated by the tension between Sempra's massive capital expenditure program — reflected in deeply negative trailing free cash flow of -$5.845 billion — and its ability to fund that buildout while sustaining its dividend, which carries a 2.85% yield and an elevated 89.4% payout ratio. Recent headlines, including SoCalGas's push to retire preferred stock at a premium, underscore management's focus on simplifying the capital structure and preserving financial flexibility, while the stock's 9.4% year-to-date decline and 16.4% one-year underperformance versus the S&P 500 signal that investors remain unconvinced the growth investments are translating into near-term shareholder value.…
SRE
Sempra
$81.20
Related headlines
Investment Opinion: Should I buy SRE Today?
The synthesized recommendation is Hold, reflecting a balance between the compelling 25.2% upside to the $101.82 average analyst target and the significant near-term risks from negative free cash flow and a stretched dividend. The core thesis is that Sempra's forward PE of 14.67x already discounts a substantial earnings recovery that has yet to materialize, and until free cash flow turns positive or the capital program shows tangible returns, the stock is likely to remain range-bound. The analyst consensus of Buy with a recommendation mean of 1.58 provides some support, but the market's 9.36% YTD decline suggests investors are waiting for concrete evidence before re-rating the shares.
Supporting evidence for a Hold includes the forward PE of 14.67x, which is below the trailing 32.11x and implies the market expects EPS to more than double to $7.16, and the 2.85% dividend yield that offers income support. However, the 89.4% payout ratio and -$5.845 billion trailing free cash flow mean the dividend is not covered by internally generated cash, and the 3.77% YoY revenue decline in Q1 2026 shows top-line pressure. The price-to-book ratio of 1.82x is moderate for a utility, but the EV/EBITDA of 13.67x is elevated relative to peers with similar growth profiles. The stock's 1.7% premium to its 52-week low of $79.59 suggests limited downside from a technical perspective, but the lack of a bounce attempt indicates sellers remain in control.
The biggest risks that could invalidate the Hold rating are a dividend cut or dilutive equity issuance to fund the capital program, a adverse regulatory outcome in California, and continued earnings volatility from tax and interest expense items. The rating would upgrade to Buy if free cash flow turns positive or if the company demonstrates consistent revenue growth above 3% while maintaining the dividend, and it would downgrade to Sell if the payout ratio exceeds 100% or if the stock breaks decisively below the 52-week low of $79.59. On valuation, SRE appears fairly valued to slightly overvalued on trailing metrics but undervalued on forward earnings if the recovery materializes, making the risk/reward balanced at current levels.
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SRE 12-Month Price Forecast
Sempra presents a classic value trap versus recovery opportunity debate, with the market pricing in substantial earnings growth that has yet to appear in free cash flow or revenue. The forward PE of 14.67x is attractive only if the consensus EPS of $7.16 materializes, but the -$5.845 billion trailing free cash flow and 89.4% payout ratio suggest the dividend and capital program are on a collision course. Analyst sentiment remains constructive with a Buy consensus and $101.82 average target, but the stock's -28.79% six-month relative strength versus the S&P 500 shows investors are not yet convinced. I would upgrade to bullish if free cash flow turns positive or if the company demonstrates two consecutive quarters of revenue growth above 2%, and I would downgrade to bearish if the payout ratio exceeds 100% or if the stock breaks below $79.59 on high volume.
Wall Street consensus
Most Wall Street analysts maintain a constructive view on Sempra's 12-month outlook, with a consensus price target around $101.59 and implied upside of +25.1% versus the current price.
Average Target
$101.59
0 analysts
Implied Upside
+25.1%
vs. current price
Analyst Count
—
covering this stock
Price Range
$84 - $118
Analyst target range
Sempra is covered by 17 analysts, and the consensus recommendation is a Buy with a recommendation mean of 1.58 (where 1.0 is a Strong Buy and 5.0 is a Sell). The average target price is $101.82, which implies 25.2% upside from the current price of $81.31 — a substantial gap that suggests analysts see the recent selloff as overdone. The consensus leans bullish, with the institutional ratings history showing predominantly Overweight and Buy actions from firms including Barclays, Truist Securities, BMO Capital, Morgan Stanley, Wells Fargo, JP Morgan, and Evercore ISI, and only UBS maintaining a Neutral stance. The estimated average EPS of $7.16 and average revenue of $14.65 billion for the forward period underpin the optimistic targets.
The target range spans from a low of $84.00 to a high of $118.00, a spread of $34.00, or 40.5% of the low target, which signals meaningful disagreement about the company's trajectory. The high target of $118.00 implies roughly 45% upside and likely assumes successful execution on the capital program, a recovery in earnings toward the high-end EPS estimate of $8.14, and multiple expansion as the market regains confidence in the growth story. The low target of $84.00 implies just 3.3% upside and appears to price in continued margin pressure, elevated interest expense, and the risk that the dividend becomes a constraint on growth investment. Notably, the low target is only $2.69 above the current price, indicating that even the most bearish analyst sees limited downside from here, which could provide a psychological floor. The recent ratings actions show no downgrades — Argus Research upgraded to Buy from Hold in March 2026 — suggesting that while the stock has fallen, analyst sentiment has not deteriorated, creating a potential contrarian setup if the fundamental outlook stabilizes.
Bulls vs Bears: SRE Investment Factors
The bear case currently has stronger evidence, anchored by deeply negative free cash flow of -$5.845 billion, declining revenue, and a stretched 89.4% dividend payout ratio that constrains financial flexibility. The stock's 21% relative underperformance versus the S&P 500 YTD and its position near the 52-week low confirm that investors are pricing in unresolved fundamental concerns. However, the bull case rests on a compelling forward valuation disconnect: the forward PE of 14.67x versus the trailing 32.11x implies the market expects a substantial earnings recovery, and 17 analysts maintain a Buy consensus with a $101.82 average target. The single most important tension is whether Sempra's massive capital expenditure program will eventually translate into the earnings growth that justifies the forward multiple, or whether the funding gap will force dilutive equity issuance or a dividend cut that breaks the investment thesis.
Bullish
- Analyst consensus Buy with 25% upside: 17 analysts rate SRE a Buy with a recommendation mean of 1.58, and the average target price of $101.82 implies 25.2% upside from the current $81.31. Even the lowest target of $84.00 sits 3.3% above the current price, suggesting the selloff has overshot fundamental value.
- Forward PE compression signals earnings recovery: The trailing PE of 32.11x collapses to a forward PE of 14.67x, a 54% compression that implies the market expects EPS to more than double toward the consensus estimate of $7.16. This disconnect between the forward multiple and the depressed price creates a potential re-rating opportunity if earnings materialize.
- Defensive low-beta utility with 2.85% yield: SRE's beta of 0.564 makes it roughly 44% less volatile than the broader market, and its 2.85% dividend yield exceeds the utility sector average. For income-oriented investors, the yield provides a tangible return stream while the low beta limits portfolio volatility.
- Q1 2026 profitability sharply improved: Q1 2026 net income rebounded to $1.150 billion with a 31.46% net margin, up dramatically from Q4 2025's $352 million (9.35% margin) and Q3 2025's $95 million (2.98% margin). Gross margin also expanded to 35.57% from 25.79% in Q3 2025, indicating operational improvement.
Bearish
- Deeply negative free cash flow of -$5.845B: Trailing free cash flow is -$5.845 billion, driven by Q1 2026 capex of $2.461 billion and Q4 2025 capex of $3.411 billion, far exceeding operating cash flow of $1.809 billion and $1.189 billion respectively. This massive funding gap forces reliance on external financing, with $6.291 billion of net financing inflows in Q4 2025 alone.
- Revenue declining 3.77% year-over-year: Q1 2026 revenue of $3.655 billion fell 3.77% from $3.798 billion in Q1 2025, with no consistent growth cadence across recent quarters. For a utility investing heavily in rate-base growth, declining top-line results undermine the thesis that capital deployment is translating into shareholder value.
- Dividend payout ratio of 89.4% unsustainable: The 89.4% payout ratio against a 2.85% yield means the dividend consumes nearly all earnings, leaving minimal cushion for the capital program. With cash at period end of just $796 million and negative FCF, the dividend is not well covered by internally generated cash.
- Severe relative underperformance vs. S&P 500: SRE has fallen 11.35% over six months and 9.36% YTD while the S&P 500 gained 17.44% and 11.70%, producing relative strength readings of -28.79% and -21.06%. The stock sits just 1.7% above its 52-week low of $79.59, indicating active de-rating rather than consolidation.
SRE Technical Analysis
Sempra is in a sustained downtrend, with the current price of $81.31 sitting just 1.7% above its 52-week low of $79.59 and 19.5% below its 52-week high of $101.04, placing it in the bottom 8% of its annual range. The 1-year price change of -1.42% masks a far more damaging trajectory: the stock has fallen 11.35% over six months and 9.36% year-to-date, while the S&P 500 gained 15.01% and 11.70% over the same periods, producing relative strength readings of -16.43% and -21.06%. This persistent underperformance against a rising market indicates the stock is not merely consolidating but is being actively de-rated, and its position near the 52-week low suggests investors are pricing in unresolved fundamental concerns rather than treating the weakness as a value opportunity.
Short-term momentum is decisively negative and accelerating to the downside. The 1-month change of -5.00% and 3-month change of -10.34% are both worse than the 1-year change of -1.42%, meaning the pace of decline has steepened in recent months rather than stabilized. The 1-month relative strength of -4.04% versus the S&P 500 confirms the stock is losing ground even as the broader market is roughly flat, and the 3-month relative strength of -12.34% shows the divergence is widening. With the current price at $81.31 having fallen from $93.46 just six months earlier, the absence of any meaningful bounce attempt suggests sellers remain in control and no capitulation-style reversal signal has yet emerged.
Key technical support rests at the 52-week low of $79.59, and a decisive breakdown below that level would likely trigger further selling and open the door to a new leg lower, as there is no established support beneath it. Resistance is anchored at the 52-week high of $101.04, and reclaiming even the $90–$93 area — where the stock traded in June and July — would be the first sign of a trend change. The beta of 0.564 indicates Sempra is roughly 44% less volatile than the broader market, which means the magnitude of its decline is notable given its defensive characteristics; for risk management, this low beta suggests position sizing can be larger per unit of market risk, but the stock's idiosyncratic underperformance means it offers little downside protection despite its utility classification. The maximum drawdown of -18.6% over the period further illustrates that this low-beta name has still delivered meaningful capital destruction.
Beta
0.56
0.56x market volatility
Max Drawdown
-18.6%
Largest decline past year
52-Week Range
$80-$101
Price range past year
Annual Return
-2.4%
Cumulative gain past year
| Period | SRE Return | S&P 500 |
|---|---|---|
| 1m | -2.0% | +1.0% |
| 3m | -12.0% | +5.4% |
| 6m | -14.8% | +17.8% |
| 1y | -2.4% | +16.5% |
| ytd | -9.5% | +13.4% |
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SRE Fundamental Analysis
Sempra's revenue trajectory has turned negative, with the most recent quarter (Q1 2026, ended March 31) generating $3.655 billion, a 3.77% decline year-over-year from $3.798 billion in Q1 2025. The multi-quarter trend is uneven: revenue rose from $3.000 billion in Q2 2025 to $3.184 billion in Q3 2025 and $3.766 billion in Q4 2025 before falling back to $3.655 billion in Q1 2026, indicating no consistent growth cadence. Segment data shows the Utilities Service Line contributed $3.238 billion, with Natural Gas, Gathering, Transportation, Marketing and Processing at $1.708 billion and Electricity at $1.235 billion, but the YoY decline suggests that rate-base growth and infrastructure investments are not yet offsetting softer volumes or pricing. For a utility investing heavily in growth, flat-to-declining revenue undermines the thesis that capital deployment is translating into top-line expansion.
Profitability is positive but volatile. Q1 2026 net income was $1.150 billion with a 31.46% net margin, a sharp improvement from Q4 2025's $352 million and 9.35% margin, and Q3 2025's $95 million and 2.98% margin. Gross margin in Q1 2026 was 35.57%, up from 25.79% in Q3 2025 and 24.97% in Q2 2025, while the trailing gross margin stands at 29.15% and the operating margin at 23.72%. The quarterly swings are extreme — Q3 2025's net income of $95 million was depressed by a $482 million income tax expense and a 76.3% effective tax rate — highlighting that Sempra's earnings are sensitive to tax items, interest expense (which rose to $382 million in Q1 2026 from $337 million in Q4 2025), and one-time adjustments. The 5.81% ROE and 1.96% ROA are modest for a utility and suggest that the large asset base is not yet generating commensurate returns.
The balance sheet and cash flow profile present the most significant risk. Trailing free cash flow is deeply negative at -$5.845 billion, driven by capital expenditures of $2.461 billion in Q1 2026 alone and $3.411 billion in Q4 2025, far exceeding operating cash flow of $1.809 billion and $1.189 billion in those respective quarters. The debt-to-equity ratio of 1.148 and total debt-to-capitalization of 53.04% indicate meaningful leverage, while the current ratio of 1.591 provides adequate short-term liquidity but is flattered by the absence of inventory. The dividend payout ratio of 89.4% against a 2.85% yield means the dividend is consuming nearly all earnings, leaving little cushion for the capital program, and the company has relied on debt repayment and issuance — $2.214 billion of debt repayment in Q1 2026 and $6.291 billion of net financing inflows in Q4 2025 — to bridge the gap. With cash at period end of just $796 million, Sempra's financial flexibility is constrained, and the negative FCF yield underscores that external financing remains essential to fund growth.
Quarterly Revenue
$3.7B
2026-03
Revenue YoY Growth
-3.8%
YoY Comparison
Gross Margin
35.6%
Latest Quarter
Free Cash Flow
$-5.8B
Last 12 Months
Revenue & Net Income Trends (2 Years)
Revenue Breakdown
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Valuation Analysis: Is SRE Overvalued?
Because Sempra reported positive trailing net income, the PE ratio is the appropriate primary metric. The trailing PE stands at 32.11x, while the forward PE is 14.67x — a dramatic 54% compression that implies the market expects earnings to more than double, consistent with the consensus EPS estimate of $7.16 versus the trailing EPS of $0.032 (which appears distorted by one-time items). This wide gap signals that investors are pricing in a substantial earnings recovery, but the stock's 9.4% YTD decline suggests the market is not yet willing to pay up for that expected growth, creating a disconnect between the forward multiple and price action.
Relative to the broader utility sector, Sempra's valuation is mixed. The price-to-book ratio of 1.82x is moderate for a regulated utility, while the price-to-sales ratio of 4.20x and EV/EBITDA of 13.67x are elevated for a company with declining revenue and a 29.15% gross margin. The dividend yield of 2.85% is above the sector average, offering income support, but the 89.4% payout ratio and negative free cash flow mean the yield is not well covered by internally generated cash. The PEG ratio of -0.84 is not meaningful given the negative earnings growth implied by trailing figures, and the EV/Sales of 7.45x reflects the heavy debt load embedded in the enterprise value. On balance, Sempra trades at a premium to what its current fundamentals justify, and the discount to its own forward earnings only holds if the aggressive EPS recovery materializes.
Historically, Sempra's valuation has been volatile. The trailing PE of 32.11x compares unfavorably to its own recent range: 13.80x in Q1 2026, 40.88x in Q4 2025, 187.46x in Q3 2025, and 26.68x in Q2 2025, reflecting the distortion from quarterly earnings swings. The price-to-book ratio of 1.82x is near the middle of its historical band, which has ranged from roughly 1.47x to 2.04x over the past several years, while the price-to-sales ratio of 4.20x is well below the 15x–18x levels seen in prior quarters (though those were calculated on different share counts and revenue bases). The current valuation does not represent a historical low on a book-value basis, suggesting that the market is not yet pricing in a worst-case scenario, but the elevated PE and negative FCF yield indicate that the stock is not cheap on cash-flow metrics either.
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
Sempra's financial and operational risks are dominated by its cash flow deficit and funding requirements. Trailing free cash flow stands at -$5.845 billion, with Q1 2026 capex of $2.461 billion and Q4 2025 capex of $3.411 billion far exceeding operating cash flow of $1.809 billion and $1.189 billion in those quarters. The 89.4% dividend payout ratio leaves virtually no retained earnings cushion, and with only $796 million of cash on hand, the company must continually access debt markets to fund both its capital program and dividend. Interest expense is already rising, reaching $382 million in Q1 2026 from $337 million in Q4 2025, and further increases would pressure already-thin 5.81% ROE and 1.96% ROA. Revenue concentration in regulated California utilities and the 80%-owned Oncor Texas business adds geographic and regulatory concentration risk, while the 3.77% YoY revenue decline in Q1 2026 shows that rate-base growth is not yet offsetting softer volumes or pricing.
Market and competitive risks center on valuation compression and the stock's persistent de-rating. SRE trades at a trailing PE of 32.11x and EV/EBITDA of 13.67x, which are elevated for a company with declining revenue and a 29.15% gross margin, meaning any failure to deliver the expected earnings recovery could trigger further multiple contraction. The beta of 0.564 indicates low market correlation, but the stock's -28.79% six-month relative strength versus the S&P 500 shows it is suffering from idiosyncratic selling pressure that low beta does not protect against. Regulatory headwinds in California, including wildfire liability exposure and rate case outcomes, remain a sector-wide overhang, and the recent SoCalGas preferred stock retirement, while simplifying the capital structure, requires a cash premium that further strains liquidity. Competitive disruption from renewable energy adoption and distributed generation could erode the long-term value of Sempra's natural gas distribution assets.
The worst-case scenario would involve a combination of regulatory setbacks, continued negative free cash flow forcing a dividend cut or dilutive equity issuance, and a broader utility sector de-rating. In this scenario, the stock could break below its 52-week low of $79.59, which is only 2.1% below the current price of $81.31, and the absence of established support beneath that level could open the door to a decline toward the analyst low target of $84.00 (which is actually above current price) or lower if fundamentals deteriorate further. A more severe outcome, such as a credit rating downgrade or a California wildfire liability event, could push the stock toward the $70-$75 range, representing a 8-14% loss from current levels. The maximum drawdown of -18.6% over the past year illustrates that this low-beta name has already delivered meaningful capital destruction, and a repeat of that magnitude from current levels would take the stock to approximately $66, a 19% decline.
FAQ
The most severe risk is financial: trailing free cash flow of -$5.845 billion and an 89.4% dividend payout ratio mean the company may be forced to cut the dividend or issue dilutive equity to fund its capital program. Second is regulatory risk in California, where wildfire liability and rate case outcomes could materially impact the regulated utility earnings, and the company's concentration in California and Texas exposes it to state-specific policy changes. Third is valuation compression risk: the stock trades at a trailing PE of 32.11x and EV/EBITDA of 13.67x, and if the expected earnings recovery does not materialize, the multiple could contract further, especially with interest expense rising to $382 million in Q1 2026. Fourth is competitive and macro risk: the beta of 0.564 offers some downside protection, but the stock's -28.79% six-month relative strength versus the S&P 500 shows it is suffering from idiosyncratic selling pressure that low beta does not mitigate, and rising interest rates increase the cost of the capital program.
The 12-month forecast for SRE is neutral with a slight upward bias, with a base case probability of 55% that the stock trades between $84.00 and $101.82 as the company makes gradual progress on its capital program. The bull case (25% probability) targets $101.82 to $118.00, assuming successful execution on the capital program, positive free cash flow inflection, and a favorable California rate case outcome. The bear case (20% probability) targets $70.00 to $79.59, assuming a dividend cut, regulatory setback, or credit rating downgrade that forces the stock below its 52-week low. The most likely scenario is the base case, where EPS grows toward the $7.16 consensus but quarterly volatility persists and the dividend is maintained at the current level. The key assumption behind the base case is that no major regulatory or financial shocks occur and that interest expense stabilizes.
SRE appears fairly valued to slightly overvalued on trailing metrics but undervalued on forward earnings if the expected recovery materializes. The trailing PE of 32.11x is elevated for a utility with declining revenue, and the EV/EBITDA of 13.67x and price-to-sales of 4.20x are above what the current 29.15% gross margin and 3.77% revenue decline justify. However, the forward PE of 14.67x is below the broader utility sector average and implies the market expects EPS to more than double to $7.16, a consensus estimate that 17 analysts support. The price-to-book ratio of 1.82x is near the middle of its historical range of 1.47x to 2.04x, suggesting the market is not pricing in a worst-case scenario. The key question is whether the earnings recovery is achievable; if it is, the stock is undervalued, but if free cash flow remains negative and the dividend is cut, the trailing metrics will prove more representative.
SRE is a reasonable buy for income-oriented investors with a long time horizon, but it carries above-average risk relative to typical utilities. The stock trades at $81.31, just 1.7% above its 52-week low of $79.59, and offers 25.2% upside to the $101.82 average analyst target, with 17 analysts maintaining a Buy consensus. However, the company's -$5.845 billion trailing free cash flow and 89.4% dividend payout ratio mean the 2.85% yield is not well covered by internally generated cash, and a dividend cut or equity issuance remains a real risk. For investors willing to accept these risks, the forward PE of 14.67x versus the trailing 32.11x suggests the market is pricing in an earnings recovery that could drive significant upside if delivered. It is not a good buy for short-term traders given the lack of near-term catalysts and the stock's persistent underperformance versus the S&P 500.
SRE is better suited for long-term investment than short-term trading, given its low beta of 0.564, 2.85% dividend yield, and the multi-year nature of its capital expenditure program. The stock's -5.00% one-month and -10.34% three-month declines show that short-term momentum is negative, and the lack of a near-term catalyst means traders are unlikely to find quick profits. For long-term investors, the forward PE of 14.67x and the 25.2% upside to the $101.82 analyst target offer a favorable risk/reward if the earnings recovery materializes over the next 12-24 months. A minimum holding period of 18-24 months is suggested to allow the capital program to translate into cash flow and for the market to re-rate the shares. Income investors should monitor the payout ratio closely; if it exceeds 100%, the dividend may be at risk, which would change the investment case entirely.