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On Thursday, Barclays (LON:BARC) analysts adjusted their stance on Sempra Energy (NYSE:SRE) stock, downgrading it from Overweight to Equal Weight and significantly reducing the price target to $72 from the previous $95. The revision follows a notable dip in the company’s shares relative to the Utilities Select Sector SPDR Fund (XLU), attributed to the outcomes of the fourth quarter earnings call of 2024. The stock has fallen significantly over the last three months, with a YTD decline of nearly 17%. According to InvestingPro data, Sempra currently trades at a P/E ratio of 16x with a market capitalization of $44.7 billion.
Sempra Energy’s fourth quarter discussion revealed substantial financial adjustments, which Barclays analysts consider one of the more significant resets observed in the regulated utilities sector. The downgrade is influenced by the timing of the Oncor rate review, accelerated capital expenditures, and the resulting impact on the company’s return on equity. Additionally, increased interest and operation and maintenance costs, coupled with higher equity dilution, have prompted concerns. Despite these challenges, InvestingPro analysis shows the company maintains strong dividend credentials, having raised its dividend for 14 consecutive years and maintained payments for 27 years straight.
The analysts noted that management’s previous confirmation of growth rates during the third quarter call did not seem to align with the new disclosures, which have led to an 11% reduction in their earnings per share estimates for Sempra Energy through 2029. Despite the stock’s approximately 16.5% underperformance and a slight recovery on Wednesday, the new valuation now places Sempra Energy at around a 17% price-to-earnings discount compared to its regulated utility peers.
Barclays’ skepticism towards Sempra Energy’s revised plan is reflected in the lowered expectations, as the company faces a challenging financial landscape. This reassessment by the analysts suggests a more cautious outlook on the stock’s potential performance in the near future.
In other recent news, Sempra Energy’s fourth-quarter 2024 earnings report showed a miss on both earnings per share (EPS) and revenue forecasts, with EPS at $1.50 compared to the expected $1.58 and revenue at $3.76 billion, below the forecasted $4.9 billion. Following this, several analyst firms adjusted their outlooks for Sempra Energy. BofA Securities lowered the price target for Sempra Energy shares from $94 to $86 but maintained a Buy rating, noting a 19% drop in stock value and a revised EPS growth expectation of 7-9% for 2025-2029. Guggenheim Securities also reduced its price target from $95 to $87 while keeping a Buy rating, citing concerns over a 58-cent reduction in 2025 EPS guidance.
Mizuho (NYSE:MFG) Securities cut the price target to $76 from $92, maintaining an Outperform rating, emphasizing the revised guidance for 2025 EPS to be between $4.30 and $4.70, lower than the anticipated $5.15. Goldman Sachs took a more cautious approach, downgrading Sempra Energy from Buy to Neutral with a new price target of $76, reflecting concerns over the company’s strategic execution and communication. Despite these adjustments, Sempra Energy announced a new capital plan of $56 billion for 2025-2029, focusing on growth in key areas like Texas and California. The company remains optimistic about achieving long-term EPS growth of 9% or higher through 2029, supported by infrastructure investments and expansion projects.
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