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On Monday, Sempra Energy (NYSE:SRE) experienced a downgrade in its stock rating from "Buy" to "Hold" by Jefferies, accompanied by a significant reduction in its price target from $96.00 to $77.00. The downgrade by Jefferies analyst Julian Dumoulin-Smith reflects a cautious stance towards the stock’s potential for recovery following a substantial revaluation of the company’s shares. The stock has already declined nearly 18% in the past week, with InvestingPro data showing the current price at $71.57, suggesting the market is pricing in these concerns.
In a statement, Dumoulin-Smith expressed a lack of confidence in the stock’s near-term prospects, citing several factors for the downgrade. These include the belief that investors will be hesitant to revalue the shares positively after a sharp reset, uncertainty regarding the company’s earnings per share (EPS) growth rate outlook, and a higher risk profile in California due to challenges with the Wildfire Fund and unsatisfactory outcomes in general rate cases. According to InvestingPro data, five analysts have recently revised their earnings estimates downward, while the company maintains a P/E ratio of 16x and expects EPS of $4.60 for the upcoming fiscal year.
The analyst also pointed to concerns about Sempra Energy’s balance sheet, with forecasts suggesting a tight financial position. The projected funds from operations (FFO) to debt ratio leaves little room for financial maneuvering, raising questions about the company’s fiscal stability. InvestingPro analysis confirms these concerns, revealing that short-term obligations exceed liquid assets, with a current ratio of 0.55 and total debt of $37.3 billion.
Moreover, regulatory uncertainty looms with the upcoming Texas rate case, which adds another layer of unpredictability to Sempra Energy’s financial outlook. The combination of these factors has led Jefferies to adopt a more conservative view of the stock’s trajectory.
Sempra Energy’s downgrade comes despite the stock’s recent 20% decrease in value, suggesting that the market has already adjusted to some of the negative sentiment. However, the analyst’s comments indicate that the current discount may not be enough to entice investors back to the stock, at least in the short term. The new price target of $77.00 reflects these concerns and sets a more modest expectation for the company’s share value moving forward.
In other recent news, Sempra Energy’s latest earnings and revenue results have prompted several adjustments from major financial analysts. The company’s fourth-quarter earnings report revealed a significant miss in earnings per share (EPS) and a downward revision of its 2025 guidance, leading to various analyst firms revising their ratings and price targets. Barclays (LON:BARC) downgraded Sempra Energy from Overweight to Equal Weight and lowered the price target to $72, citing concerns about increased costs and equity dilution. Meanwhile, BofA Securities reduced its price target to $86 but maintained a Buy rating, noting the potential for a 22% upside despite recent stock declines.
Guggenheim also lowered its target to $87 while retaining a Buy rating, expressing skepticism about the company’s revised long-term guidance. Mizuho (NYSE:MFG) adjusted its price target to $76, maintaining an Outperform rating, highlighting concerns about Sempra’s ability to execute its plans effectively. Finally, Goldman Sachs downgraded the stock to Neutral with a revised price target of $76, citing the unexpected reset in 2025 earnings expectations. These developments reflect cautious optimism among analysts, with some maintaining confidence in the company’s growth potential despite recent setbacks.
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