UBS maintains Sempra Energy stock at neutral with $78 target

Tuesday, UBS analyst William Appicelli maintained a Neutral rating and a $78.00 price target on Sempra Energy (NYSE:SRE), currently trading at $71.01. The firm’s analysis follows Sempra Energy’s announcement of its intention to sell its gas distribution assets in Mexico and a minority stake in Sempra Infrastructure. The company, which has maintained dividend payments for 28 consecutive years and currently offers a 3.6% yield, aims to reinvest the proceeds into its regulated utilities in Texas and California. According to InvestingPro, Sempra maintains a ’Fair’ overall financial health score, with 12+ additional exclusive insights available to subscribers.

Sempra’s management has indicated that the divestiture process for Ecogas Mexico and additional minority interests in Sempra Infrastructure is expected to last between 12 to 18 months. The completion of these transactions is contingent upon reaching agreeable terms with the involved parties and securing the necessary regulatory approvals.

The management team anticipates that the outcome of these strategic moves will enhance long-term shareholder value and contribute positively to earnings per share (EPS) and credit metrics. However, UBS noted that investors are likely to remain cautious until the final terms and pricing of the deals are disclosed and there is a clearer understanding of the timing for the redeployment of the capital.

The analyst pointed out that following Sempra’s fourth quarter update, there was some investor unease regarding the reset of the company’s longer-term earnings guidance. This sentiment may lead to a measured response to the proposed transactions until further execution is observed.

UBS’s stance reflects a wait-and-see approach, emphasizing the need for clarity on the financial impact of Sempra’s asset sales before a more definitive assessment can be made on the stock’s valuation.

In other recent news, Sempra announced plans to divest its natural gas distribution utility in Mexico and a minority stake in Sempra Infrastructure Partners, aiming to streamline operations. This strategic repositioning involves selling a 15% to 30% stake in Sempra Infrastructure Partners, with minority partners holding rights of first offer. Concurrently, San Diego Gas & Electric Company, a Sempra subsidiary, issued $850 million in First Mortgage Bonds, part of broader capital-raising efforts. The bonds, due in 2035, were sold to underwriters, including CIBC (TSX:CM) World Markets Corp. and Morgan Stanley (NYSE:MS) & Co. LLC, for public offering.

Moody’s Ratings recently downgraded Sempra’s outlook from stable to negative, affecting approximately $34 billion of debt securities due to weak credit metrics. However, the ratings for Sempra’s subsidiaries, SDG&E and SoCalGas, remain stable, with financial metrics expected to support their current ratings. In another development, BMO Capital Markets cut Sempra Energy’s price target to $78 from $92 but maintained an Outperform rating. This adjustment follows Sempra’s revised 2025 guidance and a new $56 billion capital plan, which BMO believes will drive growth despite a reduction in earnings estimates.

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