SOCGM

Q1 2026

Date: 2026-05-07Rank: #64Forward Promise: bullish

Sempra reported strong Q1 2026 adjusted earnings of $991 million, or $1.51 per share, up from $942 million or $1.44 per share in the prior year period. The company is executing on a record $65 billion capital plan, having deployed $3 billion in investment capital during the quarter. Key drivers for the quarter included higher equity earnings from Oncor's UTM and customer growth in Texas, alongside higher CPUC base operating margins in California. Management affirmed its 2026 adjusted EPS guidance of $4.8 to $5.3 and its long-term EPS growth rate of 7% to 9%, supported by improving regulatory returns and massive visible infrastructure opportunities in Texas.

Bullishness Score

87.76

μ Mean

93.33

σ Uncertainty

1.86

Forward Promise

8.1

Management Tone

Management exhibited high confidence and enthusiasm throughout the call, particularly regarding the unprecedented scale of load growth opportunities in Texas. The tone was assertive and forward-looking during both the prepared remarks and the Q&A session, with executives eager to highlight their proactive positioning. There was no noticeable shift in demeanor between the scripted remarks and live questioning; leaders remained consistently bullish and detailed in their responses.

Confidence: HIGH — Executives used definitive language, provided specific regulatory and operational timelines, and framed massive multi-billion dollar capital opportunities as manageable and de-risked through proactive supply chain and regulatory strategies.

Strategic Signals

Sempra is aggressively executing a strategic pivot toward becoming a pure-play utility with a heavy emphasis on Texas, expecting almost 60% of its rate base in the state by the end of the decade. This is driven by the unprecedented surge in data center and large-load requests, with Oncor's queue hitting 289 gigawatts. By focusing on high-voltage transmission as the 'anchor investment,' Sempra aims to provide investors with durable earnings growth largely insulated from the ultimate pace of individual data center connections.

The simplification of the business model is a major strategic priority, highlighted by the pending close of the SI Partners transaction with KKR and the sale of Ecogas. Management intends to use the associated proceeds to reinvest directly into its regulated utility businesses and pay down parent debt. This capital recycling program is designed to de-risk the corporate structure, improve the balance sheet, and strengthen the company's overall credit profile.

Management is highly focused on improving financial returns and reducing regulatory lag, as evidenced by the successful settlement of Oncor's base rate review, which resulted in a higher authorized equity layer of 43.5% and an ROE of 9.75%. Furthermore, the inaugural UTM filing incorporating $4.4 billion of assets significantly reduces the time it takes to begin earning returns on new capital investments, a critical advantage during a period of elevated capital deployment.

In California, Sempra is strategically navigating the regulatory and political landscape by aligning its objectives with broader state goals of affordability and livability. The recent California Earthquake Authority report and the push for SB 254 represent a coordinated effort to reform the state's wildfire liability framework. Management views this not just as a utility issue, but as a 'whole-of-society problem,' positioning the utility to achieve safer operations and better cost recovery mechanisms.

While Sempra's corporate strategy is shifting away from direct capital allocation to LNG, it still views its LNG portfolio as a highly valuable asset. With ECA LNG Phase 1 nearing substantial completion and Port Arthur LNG progressing on time and on budget, the company benefits from the expanding global demand for U.S. LNG. The strategic intent is to leverage this portfolio value while minimizing Sempra's direct risk profile as it transitions to a pure-play utility model.

Key Metrics

Q1 2026 Adjusted EPS$1.51Up 4.9% YoY from $1.44

Q1 2026 GAAP EPS$1.58Up 13.7% YoY from $1.39

Q1 2026 Adjusted Earnings$991 millionUp 5.2% YoY from $942 million

Q1 2026 Investment Capital Deployed$3 billionOn track for $13 billion annual target

Oncor Authorized ROE9.75%Increased via base rate review

Oncor Authorized Equity Layer43.5%Increased via base rate review

Oncor Large-Load Queue289 gigawatts271 GW data-center related

Oncor Substantiated Load (RTP Filing)107.42 gigawattsUp from prior 38 GW high-confidence

5-Year Capital Plan$65 billionRecord plan

Incremental Capital Opportunities~$9 billionPrimarily in Texas

Guidance

2026 Adjusted EPS: Affirmed range of $4.8 to $5.3

2027 Adjusted EPS: Affirmed range of $5.1 to $5.7

Long-term EPS Growth Rate: Affirmed 7% to 9%

ECA LNG Phase 1: Expect to produce first LNG next month; targeting substantial completion this summer

SI Partners Transaction: Expected to close in Q2 or Q3 2026

Ecogas Sale: On track to close in Q2 or Q3 2026

Bottom Line

Price Target: N/A

Sempra offers a highly compelling investment thesis centered on the accelerating electrification and data center boom in Texas, anchored by Oncor's industry-leading $47.5 billion capital plan. The Q1 2026 results and subsequent Q&A session demonstrated that management is not only meeting but actively accelerating its value creation initiatives, securing the necessary supply chains and regulatory frameworks to execute flawlessly. The affirmation of the 7% to 9% long-term EPS growth rate appears conservative when considering the 127 gigawatts of substantiated load in Oncor's queue, which represents multi-decade upside potential. While California regulatory risks remain a valid concern, management's alignment with the state's affordability and livability goals, combined with the CEA report, suggests a constructive path forward on wildfire reform. The strategic pivot to a pure-play utility model via the SI Partners transaction further de-risks the story and simplifies the investment narrative. For investors seeking durable, above-average utility growth with embedded optionality from the AI-driven infrastructure build-out, Sempra stands out as a top-tier holding.

Forward Promise

Overall: 8.1 · bullish

Highly confident management details massive Texas growth pipeline.

Management delivered a highly confident performance, backing its bullish Texas narrative with specific, verifiable data on load queues and supply chain readiness. The Q&A revealed a company firmly in control of its execution pipeline, significantly de-risking the near-term investment thesis.

Red Flags

Execution risk associated with the massive $65 billion capital plan is substantial. While management expressed high confidence in securing supply chains and labor, the sheer scale of the 127 gigawatts of qualifying load and the required transmission infrastructure in Texas present significant logistical challenges. Any failure to match generation capacity with load growth or delays in securing rights-of-way and CCNs could impede the conversion of pipeline opportunities into realized rate base.

California regulatory and wildfire risks remain a persistent overhang. Despite management's 'reasonable confidence' in passing SB 254 this legislative session, the outcome is uncertain. The current wildfire liability framework is acknowledged as inadequate, and failure to achieve meaningful reform could materially impact the investment thesis and cost structure for Sempra's California utilities.

The timeline for credit rating improvements is extended and dependent on multiple factors. Management indicated that rating agency threshold improvements post-SI Partners close could take up to six months, with Moody's specifically requiring further progress on construction milestones. This delayed deleveraging process leaves the company potentially vulnerable to negative credit actions in the interim if construction encounters setbacks.

There is a heavy reliance on the successful and timely closing of the SI Partners transaction to fund utility reinvestment and debt paydown. Although key regulatory approvals have been received, remaining consents from Cameron partners and Japanese export credit agencies are still pending. Any delay or failure to close this transaction would stall the balance sheet strengthening and capital recycling strategy.

The transition of massive load queues into actual connected load is subject to complex ERCOT procedural risks. The Batch 0 process and regional transmission plan timelines are subject to change, and the final inclusion criteria will not be finalized until July 2026. Regulatory decisions in these proceedings could alter the pace or scale of data center load interconnections, impacting the 'incremental to the incremental' capital opportunities.

Macro Insights

Data Center & AI Demand: The United States is in an infrastructure 'arms race' to support artificial intelligence, with Texas serving as 'ground zero' due to its favorable regulatory environment and economic activity.

U.S. Energy Competitiveness: The U.S. possesses deep capital markets, ample natural gas reserves, low price volatility, and the rule of law, positioning it to gain LNG global market share, especially when global energy markets are stressed.

State Energy Policy: Texas is proactively developing processes (Batch 0, RTP) to manage unprecedented load interconnection requests, signaling strong state support for infrastructure development.

Insurance & Affordability: California faces systemic challenges regarding the affordability and availability of insurance, necessitating a 'whole-of-society' approach to mitigate wildfire risks and improve community livability.