SREA

Q1 2026

Date: 2026-05-07Rank: #49Forward Promise: bullish

Sempra reported a strong first quarter of 2026, with adjusted earnings of $991 million, or $1.51 per share, representing a 4.9% increase from $1.44 per share in the prior year period. The company deployed $3 billion of investment capital in the quarter, keeping it on track to meet its annual targets. Key drivers for the quarter included higher equity earnings from Oncor's UTM, increased CPUC base operating margins in California, and positive momentum at Sempra Infrastructure. Management affirmed its full-year 2026 adjusted EPS guidance range of $4.80 to $5.30 and its long-term EPS growth rate of 7% to 9%, supported by a record $65 billion capital plan heavily weighted toward Texas infrastructure.

Bullishness Score

88.86

μ Mean

94.46

σ Uncertainty

1.87

Forward Promise

8.3

Management Tone

Management exhibited a highly confident and assertive tone throughout the call, deeply anchored by the unprecedented growth opportunities at Oncor. The prepared remarks were structured around executing a clear value-creation plan, while the Q&A session revealed a team eager to elaborate on the massive scale of Texas load growth. There was no noticeable shift in confidence between the scripted remarks and the live questioning; leadership consistently projected optimism and operational control.

Confidence: HIGH — Rationale based on highly specific language regarding pipeline expansion, regulatory milestones, and supply chain management, coupled with a complete absence of defensive posturing during challenging analyst probes on execution constraints.

Strategic Signals

Sempra is aggressively executing a strategic pivot to become a pure-play utility, deliberately reducing its risk profile and capital allocation to the LNG sector. This is evidenced by the ongoing SI Partners transaction with KKR and the Ecogas sale, both expected to close in 2026. The proceeds from these sales are earmarked for reinvestment into regulated utilities and parent debt paydown, streamlining the business model to focus on durable, rate-regulated earnings growth.

The company is heavily leaning into Texas, expecting to derive almost 60% of its rate base from the state by the end of the decade. This strategy is underpinned by Oncor's $47.5 billion base capital plan, which is largely independent of data-center load growth, focusing instead on the 'superhighway of high-voltage transmission.' This provides a massive floor for capital deployment, with data centers acting as pure upside.

Oncor's proactive approach to supply chain diversification over the last five years has created a significant competitive moat. By securing contract slots for 765-kV equipment and labor well in advance, Oncor has insulated its $47.5 billion base plan from the inflationary and logistical pressures currently constraining the broader industry. This forward procurement strategy, supported by early Board authorization, ensures high execution visibility through 2028.

Sempra is making substantial progress on improving financial returns at its utilities, directly addressing prior regulatory lag. The recent PUCT approval for Oncor increases the authorized ROE to 9.75% with a 43.5% equity layer, while the new UTM mechanism allows for annual rate adjustments. In California, the pending TO6 settlement at FERC increases SDG&E's authorized ROE to 10.28%. These regulatory wins structurally improve the earnings power and credit metrics of the underlying businesses.

Despite the strategic pivot away from direct LNG ownership, Sempra recognizes the expanding global market for U.S. LNG and is leveraging its dual-coast positioning to capture remaining value. Management remains bullish on long-term LNG fundamentals, noting that global market stress highlights America's competitive advantage. The focus is on securing remaining offtake for Port Arthur Phase 2 at favorable economics before transitioning the infrastructure into a purely contracted, capital-light profile for the parent.

Key Metrics

Adjusted EPS$1.51+$0.07 YoY

GAAP EPS$1.58+$0.19 YoY

Q1 Capital Deployed$3.0 billionOn track for annual target

Oncor Authorized ROE9.75%Approved in new rate case

Oncor Authorized Equity Layer43.5%Approved in new rate case

Oncor Large Load Queue127 GWUp from 38 GW high-confidence

Total Capital Plan$65 billionRecord plan

Incremental Capital Opportunities$9 billionPrimarily Texas

Guidance

2026 Adjusted EPS: Affirmed at $4.80 to $5.30

2027 Adjusted EPS: Affirmed at $5.10 to $5.70

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

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

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

Bottom Line

Price Target: N/A

Sempra offers a highly compelling, lower-risk investment vehicle to play the unprecedented infrastructure buildout in Texas. The core investment thesis rests on Oncor's $47.5 billion base capital plan, which is fundamentally secured by broad economic growth and high-voltage transmission needs, rendering it largely immune to the speculative risks associated with data-center development. The 127 gigawatts of qualifying load in the pipeline represents profound, multi-decade upside that management refers to as the 'incremental to the incremental.' Operationally, management demonstrated exceptional command of their supply chain, having proactively secured critical equipment and labor through 2028, a distinct competitive advantage in a constrained market. The strategic pivot to a pure-play utility model via the SI Partners transaction further de-risks the profile and sets a clear pathway for credit rating upgrades by late 2026 or early 2027. While California regulatory risks and the sheer scale of execution remain valid monitoring points, management's confident, granular responses to these concerns during the Q&A suggest they are well-managed. Supported by a 7-9% long-term EPS growth rate—one of the highest in the sector—Sempra presents a durable, high-confidence growth story trading at a compelling risk-reward relative to its infrastructure potential.

Forward Promise

Overall: 8.3 · bullish

Highly confident in Texas-led growth, unfazed by execution scale.

Management delivered a masterclass in articulating a massive, de-risked growth trajectory. The core utility base plan is solidly financed and supply-chain secured, rendering the explosive data-center upside a pure bonus for shareholders.

Red Flags

While the 127 gigawatts of qualifying large load in Oncor's queue is staggering, the physical and logistical constraints of actually bringing this capacity online present a meaningful execution risk. As noted by an IPP on a prior call, and acknowledged indirectly by management, the choreography between the RTP process, the Batch 0 process, and the actual construction of matching generation and transmission is immense. Any regulatory delays or generation shortfalls could push back the 'incremental to the incremental' capital deployment.

Sempra's credit profile remains in a transitional, potentially vulnerable state until the SI Partners transaction closes. CFO Karen Sedgwick noted that rating agency threshold improvements are not expected to be immediate post-close, with Moody's specifically requiring further progress on construction projects. The negative outlook may not be resolved until the end of 2026 or early 2027, leaving a window where elevated parent debt could constrain financial flexibility.

The California regulatory environment, while currently showing positive signs with the CEA report and SB 254, remains a structural risk. Management expressed 'reasonable confidence' in legislative progress this session, but the outcome is uncertain. Failure to pass meaningful wildfire liability reform could expose Sempra's California utilities to outsized operational and financial risks, potentially offsetting the strong growth trajectory in Texas.

Although management expressed high confidence in labor availability due to Oncor's large project backlog, the sheer scale of the $65 billion capital plan introduces macroeconomic and labor market risks. The company has nearly tripled its contract labor, but sustained multi-year execution across massive transmission lines and LNG facilities requires a continuous, specialized workforce that is becoming increasingly constrained across the industry.

Macro Insights

Energy Infrastructure: The U.S. is in an 'arms race' to build energy infrastructure to support AI and technological leadership, with Texas positioned as 'ground zero' for this opportunity due to its favorable regulatory and economic environment.

Global LNG Markets: Global energy market stress highlights the competitive advantage of U.S. LNG due to deep capital markets, ample reserves, low price volatility, and the rule of law. Buyers are willing to pay a premium to take risk off the table, benefiting dual-coast export platforms.

Labor & Supply Chain: The broader industry is facing emerging labor constraints and supply chain bottlenecks. However, companies with massive, visible backlogs like Oncor possess a distinct advantage in attracting and retaining the specialized workforce necessary for multi-year projects.

State Legislation: There is growing bipartisan alignment in California around improving the 'livability' of the state, which includes addressing housing affordability, insurance availability, and modernizing wildfire liability frameworks for utilities.