Sempra (SRE) Q3 2026 Earnings Call Transcript

Sempra reported Q3 2026 adjusted EPS of $1.40, up 26% year over year, and guided toward the high end of its 2026 adjusted EPS range of $4.80–$5.30 while affirming 2027 guidance of $5.10–$5.70 and long-term EPS growth of 7%–9%. Management expects Oncor's 2027–2031 base capital plan to increase about 20% from its existing $47.5 billion plan, supported by strong Texas demand and projected rate-base growth of 11%. A California regulatory decision could pressure 2027 segment earnings if a requested correction to a $188 million revenue-requirement error is not granted; management said the issue is limited to 2027. Sempra expects its sale of a 45% stake in SI Partners to close within two weeks, with proceeds intended in part to pay down debt.

Analysis

The constructive read-through is not that every Texas load request becomes earnings; it is that Sempra can grow the regulated investment base from multiple customer categories, reducing dependence on data-center demand alone. If large-load tariffs adopt take-or-pay terms, they could shift utilization and stranded-asset risk toward new customers and improve the politics of grid investment. That is a potentially important second-order support for Oncor’s project approvals—but requests remain distinct from connected, paying load, and the additional Batch Zero opportunity is outside the near-term plan.

For SRE, the key conversion risk is capital intensity: a larger approved plan supports future rate-base growth only if construction, regulatory recovery, and financing keep pace. Asset-sale proceeds and debt reduction may cushion funding needs, but do not eliminate exposure to higher interest costs or possible equity issuance. The California attrition dispute is presented as a one-year earnings issue; the broader signal to monitor is whether regulatory uncertainty changes the mix or pace of future California investment in favor of Texas.

Near term, the SI Partners closing and December Texas regulatory milestones can move sentiment. The February capital-plan update is the more consequential 1–3 month test of project visibility and funding. Over 6–18 months, realized load connections, rate recovery, and financing costs matter more than request totals. Contrarian risk: investors may capitalize pipeline and rate-base growth too quickly while underweighting approval, execution, and funding lags. The thesis weakens if the sale slips, approved capital is delayed, large-load commitments fail validation, or financing needs pressure credit metrics.

Key Decisions for Investors

• Consider a staged long SRE on broad utility-sector weakness rather than chasing the growth narrative; the upside case is regulated Texas investment and a simpler, lower-risk portfolio, while the principal offset is financing and regulatory execution risk. Reassess after the SI Partners closing and February plan disclosure.
• Treat Batch Zero and incremental 765 kV projects as optionality, not base-case earnings. Upgrade confidence only as validation, customer financial commitments, and regulatory approvals become observable; a delayed study or weak validation would falsify the near-term upside case.
• Track the December PUCT decisions on large-load cost allocation and Permian Path 2, plus the California petition process. Favor the thesis if new-load customers bear the costs they create and California recovers the disputed revenue requirement; a materially adverse final ruling or weakened Texas cost-allocation rules would undermine it.
• Before adding on reported rate-base growth, verify SRE’s February capital plan, funding mix, credit-metric headroom, and realized customer connections. If capex rises faster than recoverable earnings or requires unexpectedly dilutive financing, reduce exposure rather than extrapolating the headline growth rate.