Sempra Energy stock price target raised to $95 by Wolfe Research

Wolfe Research raised its price target on Sempra Energy (SRE) to $95 from $91, maintaining an Outperform rating, citing the utility's high-quality regulated franchises in California and Texas, consistent dividend growth, and significant upside from its LNG export business, including a new 20-year sales agreement with EQT. The firm projects $12 billion in upside capital expenditure from its Texas utility by 2029 and expresses high conviction for 7-9% EPS growth through 2029, with the business shifting to approximately 95% utilities post-asset sale. Additionally, Sempra's California subsidiary, SDG&E, is poised to benefit from the new $18 billion Wildfire Fund Continuation Account, which mitigates catastrophic wildfire-related liabilities.

Analysis

Wolfe Research has upgraded its price target for Sempra Energy (SRE) to $95.00 from $91.00, reiterating an Outperform rating, which reflects a strong conviction in the company's growth trajectory and strategic positioning. The positive outlook is anchored by Sempra's high-quality utility franchises in California and Texas, which benefit from constructive regulation and operate in above-average growth territories. This core business is complemented by a consistent capital return policy, evidenced by 14 consecutive years of dividend increases and a current 3% yield. A significant growth catalyst is Sempra's stake in its infrastructure arm (SI), particularly the LNG export business, which recently secured a 20-year sales and purchase agreement with EQT Corporation for 2 million tonnes per annum from the Port Arthur LNG Phase 2 project. Furthermore, the company anticipates a strategic business mix shift to approximately 95% utilities following a planned SI stake sale, enhancing earnings stability. A key de-risking event is the establishment of the $18 billion Wildfire Fund Continuation Account in California, providing a crucial liquidity backstop for Sempra’s subsidiary, San Diego Gas & Electric, against catastrophic wildfire liabilities. Wolfe Research projects Sempra will achieve the high end of its 7-9% EPS growth target through 2029, supported by an additional $12 billion in upside capital expenditure identified for its Texas utility for 2027-29, underpinning the new price target based on 2027 estimated earnings of $5.61 per share.

Key Decisions for Investors

• Investors should view the combination of a price target upgrade, a high-conviction 7-9% EPS growth outlook, and a strategic shift towards a more predictable utility model as a strong bullish signal.
• The establishment of the $18 billion California wildfire fund materially de-risks Sempra's operations, warranting a re-evaluation of the stock's risk premium, particularly for investors previously concerned about wildfire liabilities.
• The 20-year LNG sales agreement with EQT solidifies a long-term revenue stream, positioning SRE favorably for investors seeking a blend of stable income from its 3% dividend yield and long-term growth from its LNG and Texas utility expansion projects.
• Monitor the execution of the planned SI stake sale and the progress of the Port Arthur LNG terminals, as these are key catalysts for realizing the projected business mix shift and future earnings growth.