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Sempra Energy (SRE): A Diversified Energy Infrastructure Leader Poised for Continued Growth
Published on September 24, 2024 | Ticker: SRE

Sempra Energy (SRE) is a leading energy infrastructure company that operates in some of the largest and fastest-growing markets in North America. With a diverse portfolio of regulated utilities and energy infrastructure assets, Sempra is well-positioned to capitalize on the increasing demand for reliable and sustainable energy solutions.

Financials

Sempra's financial performance has been robust, with the company reporting annual net income of $3,075 million, annual revenue of $15,802 million, annual operating cash flow of $6,218 million, and annual free cash flow of -$2,179 million in its latest fiscal year. In the first quarter of 2024, the company reported GAAP earnings of $801 million, or $1.26 per share, and adjusted earnings of $854 million, or $1.34 per share.

Business Overview

The company's diversified business model, which includes its Sempra California, Sempra Texas Utilities, and Sempra Infrastructure segments, has been a key driver of its success.

Sempra California

Sempra California, which includes the company's regulated utility operations in California, reported first-quarter 2024 earnings of $582 million, a decrease of $36 million (6%) compared to the same period in 2023. This was primarily due to higher net interest expense and lower income tax benefits, partially offset by higher authorized cost of capital.

Sempra Texas Utilities

Sempra Texas Utilities, which includes the company's investment in Oncor Holdings, reported first-quarter 2024 earnings of $183 million, an increase of $100 million compared to the same period in 2023. This was primarily due to higher equity earnings from Oncor Holdings, driven by increased revenues, rate updates, and customer growth.

Sempra Infrastructure

Sempra Infrastructure, the company's energy infrastructure segment, reported first-quarter 2024 earnings of $131 million, a decrease of $184 million compared to the same period in 2023. This was primarily due to lower asset and supply optimization results, partially offset by lower net interest expense and higher power generation results.

Outlook

Sempra's diversified business model has provided the company with a strong foundation for growth. The company's $48 billion capital plan through 2028 includes investments in its regulated utility operations, as well as in its energy infrastructure assets, such as liquefied natural gas (LNG) facilities and renewable energy projects.

In Sempra California, the company is focused on making investments that support electrification and decarbonization, while also improving affordability, safety, and reliability for its customers. The company recently received a proposed decision from the California Public Utilities Commission (CPUC) supporting the updated return on equity that was implemented in 2024 as part of the Cost of Capital Mechanism (CCM) trigger. This decision provides regulatory certainty and affirms the protection that the CCM provides to customers and shareholders.

In Sempra Texas Utilities, the company's Oncor subsidiary is experiencing significant growth in its service territory, with ERCOT forecasting a 40% increase in load by 2030. To address this growth, Oncor recently filed a $3 billion system resiliency plan, which includes investments in overhead and underground system resiliency, flexible and self-healing distribution systems, vegetation management, and cybersecurity.

Sempra Infrastructure is also a key driver of the company's growth, with several major projects under construction or in development. The company's ECA LNG Phase 1 project in Mexico is approximately 80% complete and remains on track to start commercial operations in the summer of 2025. The company's Port Arthur LNG Phase 1 project in Texas is also progressing well, with significant ongoing construction activity.

Risks and Challenges

While the U.S. Department of Energy's temporary pause on LNG export approvals has received significant attention, Sempra remains confident in its ability to deliver projects that offer long-term, secure, and cleaner energy to customers. The company's experienced project development teams continue to make progress on critical work streams, including permitting, engineering, and commercial negotiations.

Liquidity

Sempra's financial position remains strong, with ample liquidity and a commitment to efficient financing of its growth initiatives. The company has successfully grown its dividend at a rate of approximately 7% annually over the last 10 years, demonstrating its ability to return capital to shareholders while also investing in its core businesses.

Conclusion

Overall, Sempra's diversified business model, strong growth prospects, and commitment to operational excellence position the company as a leading energy infrastructure player in North America. With a robust capital plan, a focus on sustainable energy solutions, and a track record of delivering value to shareholders, Sempra is well-poised to continue its growth trajectory in the years to come.

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