Sempra Energy Earnings: Texas Drives Significant Capital Need in Five-Year Plan

We are maintaining our $77 per share fair value estimate after Sempra Energy SRE announced third-quarter operating earnings of $1.08 per share compared with $0.98 in the same year-ago period. Management reaffirmed its 2023 earnings guidance range of $4.30 to $4.60 per share, with expectations to be at the high end of the range. This is consistent with our estimates.

Management also reaffirmed 2024 earnings guidance of $4.55 to $4.90 per share. The company’s 6% to 8% long-term annual earnings growth guidance range is in line with our 7% estimate.

Sempra plans to provide its 2024-28 capital investment plan early next year. Management noted it expects its updated plan to be 10% to 20% higher than its current 2023-27 plan.

Texas will likely once again see a significant increase in capital investments driven by system resiliency and reliability requirements under HB 2555. Additionally, Sempra’s Texas service territory continues to experience significant customer growth, also driving investment need. Supporting these growth opportunities is an improving regulatory environment in Texas with the passage of SB 1015, which reduced regulatory lag by having most capital recovered through rate trackers.

In California, Sempra’s utility subsidiaries filed for a 70-basis-point increase in their return on equity as allowed in the cost of capital adjustment mechanism. A decision on the California utilities general rate case is expected in the second quarter next year, and we continue to expect a constructive outcome. Management also noted additional capital investment opportunities in California, but we expect these opportunities to be less than in Texas.

Earnings in the quarter benefited from higher Texas earnings driven by higher allowed rates, above-average demand from favorable weather, and continued customer growth.