Earnings optimism puts Sempra (SRE) in focus ahead of August 6 report

Investor attention is turning to Sempra (SRE) as Wall Street anticipates a year over year earnings increase in the upcoming August 6 quarterly report, with expectations already influencing recent stock activity.

At a recent share price of US$89.58, Sempra has seen its 7 day share price return decline 4.13% and its 90 day share price return fall 5.38%. This contrasts with its 1 year total shareholder return of 12.84% and 5 year total shareholder return of 57.63%, which point to longer term momentum that differs from the softer near term trading ahead of the earnings update.

If you are looking beyond Sempra and want to see which other utility focused businesses are attracting attention, this could be a useful moment to review 35 power grid technology and infrastructure stocks

For Sempra, the question now is whether the recent pullback reflects concerns about the underlying utility and infrastructure business, or whether it is simply a reset in sentiment after a strong multi year run. That is where valuation comes in.

Most Popular Narrative: 13.4% Undervalued

Against a last close of $89.58, the most followed narrative for Sempra points to a fair value of $103.50, bringing its long term capital program into sharper focus.

Strong demand growth in Texas, driven by rapid population increases, urbanization, and large-scale electrification of industry and buildings (including massive data center and C&I load growth), is expected to require multi-billion capital investment in energy infrastructure, directly expanding Sempra's regulated rate base and supporting higher future revenues and earnings.

Read the complete narrative. Read the complete narrative.

Want to see what sits behind that fair value for Sempra? The narrative leans heavily on steady revenue expansion, a step change in profit margins, and a rerated earnings multiple. The full set of projections and the 7.11% discount rate are all laid out there.

Result: Fair Value of $103.50 (UNDERVALUED)

However, you also need to weigh the risk that regulatory changes in California or Texas, or weaker LNG demand, could limit the outcomes assumed in the Sempra narrative.

Another View on Sempra: P/E Signals a Very Different Story

The Sempra narrative built around a fair value of $103.50 paints the stock as 13.4% undervalued. Yet on simple earnings multiples, the picture looks less forgiving. Sempra trades on a P/E of 30.4x, compared with a fair ratio of 27.3x and a peer average of 19.5x.

That means investors today are paying much more for each dollar of Sempra earnings than both its own fair ratio and the broader Integrated Utilities group suggest. In practical terms, this points to valuation risk if growth or margins fall short of expectations. Which version of Sempra’s story is more persuasive: the narrative fair value or the current earnings multiple?

Next Steps

With sentiment clearly split on Sempra, this is a moment to move quickly and review the full picture for yourself, including the balance of 1 key reward and 4 important warning signs

Looking for more investment ideas beyond Sempra?

If you are weighing Sempra and want a broader watchlist, use this moment to scan other opportunities that fit your style, risk level, and income goals.

• Target potential mispricings by reviewing companies that screen as high quality and undervalued through the 56 high quality undervalued stocks.
• Strengthen your cash flow with companies that combine higher yields with resilient payouts by checking the 8 dividend fortresses.
• Prioritise resilience and capital preservation by focusing on companies that appear in the 89 resilient stocks with low risk scores.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.