Sempra Energy Reports Strong Full-Year Results

We are maintaining our $146 per share fair value estimate after Sempra Energy SRE reported full-year 2022 operating earnings of $9.21 compared with $8.43 in 2021.

Management reaffirmed 2023 earnings guidance range of $8.60 to $9.20, which we expect the company to achieve at the high end. The company reaffirmed its long-term earnings guidance range of 6% to 8%, in line with our 7% growth estimate through 2026. The company’s $4.76 per share dividend for 2023 is only a 4% increase from 2022. This dividend increase is below our expectations, and we would like for dividend growth to be more in line with our earnings growth going forward as the company is at the low end of its 50% to 60% dividend target ratio.

On the regulatory calendar, both Sempra subsidiaries in California received decisions on their cost of capital proceedings for 2023-25, with SDG&E’s 9.95% allowed return on equity, or ROE, and SoCalGas’ 9.8% allowed ROE below our expectations. Overall, we view the outcome as constructive. A decision on the utilities’ general rate case is expected in the second quarter of 2024.

In the fast-growing Texas region, we continue to expect a constructive outcome supporting the significant capital investment needs in Oncor’s current rate case. The filing requests a 10.3% allowed ROE. We expect the utility will receive an allowed ROE more in line with the current 9.8%.

At Sempra Infrastructure, the company has fully subscribed the $10.5 billion, 10.5 Mtpa Phase 1 Port Arthur LNG project, with a final investment decision expected by the first quarter. The subsidiary is finalizing financing, with the subsidiary targeting a 20%-25% equity ownership stake. We expect Sempra to move forward with the project. Sempra continues to see significant demand across its numerous LNG opportunities.

Earnings in 2022 benefited from higher base rates in California, customer growth in Texas, and increased contributions from Sempra Infrastructure.