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On Wednesday, Guggenheim Securities adjusted its outlook on Sempra Energy (NYSE:SRE) shares by lowering the price target to $87 from the previous $95, while still maintaining a Buy rating on the stock. Currently trading at $70.64, the stock has experienced a significant 19.47% decline year-to-date, with InvestingPro data showing the stock in oversold territory. The revision followed Sempra’s fourth-quarter earnings per share (EPS) miss and a reduction in the company’s 2025 guidance by 58 cents. The new long-term EPS growth guidance is set at 7-9%.
Shahriar Pourezza, an analyst at Guggenheim, expressed that the earnings call did not provide the necessary clarity for investors. The management’s decision to decrease the base year EPS by 10% and add 100 basis points at the midpoint of the new long-term guidance range was met with skepticism. Despite management’s suggestion that long-term EPS guidance could be at or above the 9% level, investors and analysts found it challenging to align with this outlook based on the information available. The broader analyst community maintains a bullish stance, with consensus recommendations leaning toward Buy and price targets ranging from $76 to $99.
The analyst highlighted that while the rebasing of the 2025 guidance as a new base year might seem unfair to Sempra’s earnings potential, several factors contribute to this perspective. These include the delay in the ECA I project, the resolution of drag at Oncor through base rate filing, and the partial offset of CA GRC drag by separate recovery filings.
However, the lack of clear guidance has led to a downturn in investor sentiment, with Sempra’s stock trading 20% lower compared to the Utility sector. Guggenheim questioned the management’s rationale for presenting the plan as it is and noted that without further clarity on regulatory and financial plans, it is difficult to expect growth above 9%.
Despite these concerns, Guggenheim believes the approximately 20% selloff compared to the Utility sector is an overreaction. The firm suggests that the valuation, even with significantly lowered numbers, indicates a 25% discount compared to peers, with no fundamental issues in either the regulated utilities or the company’s infrastructure projects. With a P/E ratio of 15.5x and a market capitalization of $44.9 billion, the stock shows notable value characteristics. Adding to its appeal, Sempra has maintained dividend payments for 27 consecutive years, with 14 years of consecutive increases. Guggenheim reiterated its Buy rating on Sempra Energy with the updated price target of $87, acknowledging the disappointing results but seeing potential value in the stock.For deeper insights into Sempra’s valuation and growth prospects, InvestingPro subscribers can access comprehensive analysis, including 8 additional ProTips and detailed financial metrics in the Pro Research Report, helping investors make more informed decisions during this period of market uncertainty.
In other recent news, Sempra Energy’s fourth-quarter 2024 earnings report revealed a significant miss on both earnings per share and revenue forecasts. The company reported an EPS of $1.50, below the expected $1.58, and revenue of $3.76 billion, compared to the forecasted $4.9 billion. Following these results, Sempra Energy announced a revised earnings guidance for 2025, projecting earnings between $4.30 and $4.70, which is lower than the previous estimate of $5.15. This revision was attributed to several factors, including unfavorable rate outcomes in California and regulatory delays in Texas. As a result, Mizuho (NYSE:MFG) Securities adjusted Sempra’s stock target from $92.00 to $76.00, maintaining an Outperform rating, while Goldman Sachs downgraded the stock from Buy to Neutral with a new price target of $76.00. Despite these challenges, Sempra Energy announced a new capital plan of $56 billion for 2025-2029, focusing on infrastructure and energy projects in Texas and California. The company remains optimistic about achieving EPS growth of 9% or higher through 2029, supported by strategic investments in high-growth regions.
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