Sempra Energy (NYSE:SRE) unveiled an ambitious five-year capital plan and strategic transformation during its February 26, 2026 investor presentation, highlighting record 2025 financial performance while charting a course toward becoming a predominantly regulated utility business. The San Diego-based energy infrastructure company reported full-year adjusted earnings per share of $4.69, marking its strongest annual performance despite a fourth-quarter revenue shortfall that saw the company generate $3.75 billion against analyst expectations of $4.25 billion.
The company's stock rose 1.75% to $96.15 in premarket trading following the presentation, trading near its 52-week high of $97.45 after delivering a 33.96% return over the past year. With a market capitalization of $62.7 billion and a P/E ratio of 29.59, Sempra trades above InvestingPro's fair value estimate, reflecting investor confidence in the company's transformation strategy despite some valuation concerns.
Executive Summary
Sempra's 2025 presentation outlined a comprehensive strategy centered on five value creation initiatives: investing $13 billion annually in utility infrastructure, unlocking value in its LNG franchise, selling non-core assets, executing operational efficiency programs, and maintaining safety excellence. The company successfully invested approximately $13 billion in capital expenditures during 2025, increased its rate base from $50 billion to $57 billion, and achieved several strategic milestones including signing a definitive agreement to sell a 45% stake in Sempra Infrastructure Partners.
The company's accomplishments extended beyond financial metrics to include reaching final investment decision on Port Arthur LNG Phase 2, achieving mechanical completion on ECA LNG Phase 1, and securing Senate Bill 254 in California to improve utilities' financial backstop. SDG&E maintained its distinction as the most reliable utility for the 20th consecutive year.
Financial Performance Analysis
Sempra's full-year 2025 adjusted earnings reached $3.066 billion, or $4.69 per share, compared to $2.969 billion, or $4.65 per share in 2024. However, the fourth quarter presented a more mixed picture, with adjusted EPS of $1.28 falling short of the prior year's $1.50, though exceeding analyst forecasts of $1.23.
GAAP earnings showed more significant variation, declining from $2.817 billion in 2024 to $1.796 billion in 2025, primarily due to regulatory disallowances totaling $457 million for the full year, compared to $104 million in the prior year. The company made several adjustments to reconcile GAAP to adjusted earnings, including impacts from California regulatory decisions, foreign currency effects in Mexico, and unrealized derivative positions.
Sempra Texas contributed $80 million in incremental earnings through higher equity earnings from its Utility Transition Mechanism (UTM), increased invested capital, and customer growth, though partially offset by higher interest expense and operating costs. Conversely, Sempra California experienced a $213 million decline due to lower income tax benefits and higher net interest expense. Sempra Infrastructure added $123 million through improved asset optimization and lower depreciation, while Parent & Other reduced earnings by $41 million primarily from higher net interest expense.
Strategic Transformation and Capital Recycling
Central to Sempra's strategy is a fundamental transformation toward a utility-centric business model, targeting 95% of earnings from regulated operations by 2030. This shift involves strategic asset sales that unlock capital for reinvestment in high-growth utility infrastructure while strengthening the balance sheet.
The company signed a definitive agreement to sell a 45% stake in Sempra Infrastructure Partners, unlocking a $22.2 billion equity valuation for the LNG and energy infrastructure platform. Additionally, Sempra reached an agreement to sell Ecogas, its South American gas distribution business, for approximately $500 million at an attractive 12.7x EBITDA multiple.
These transactions represent the latest phase in Sempra's effective capital recycling strategy, which has enabled rate base growth without excessive equity issuances. The company has executed approximately $23.5 billion in asset sales since 2017, including renewable energy assets, South American utilities, and staged reductions in its infrastructure holdings.
Growth Drivers and Capital Allocation
Sempra's five-year capital plan totals $65 billion for 2026-2030, with an additional $9 billion in identified upside opportunities. The plan prioritizes utility investments across both its Texas and California operations, with annual capital expenditures ranging from $12.7 billion to $13.4 billion.
This substantial investment program is expected to drive an 11% compound annual growth rate in rate base, expanding from $57 billion in 2025 to a projected $97 billion by 2030. The rate base growth trajectory demonstrates the scale of infrastructure investment across the company's footprint:
The financing plan for this capital program demonstrates financial discipline, with $45 billion expected from operations, $6 billion from capital recycling, and $43 billion from debt issuances. Critically, the company emphasized that improved operating cash flows of 13% year-over-year, combined with capital recycling proceeds, eliminate the need for common equity issuances to fund the base capital plan -- a significant positive for existing shareholders concerned about dilution.
Texas Operations: The Primary Growth Engine
Sempra Texas, operating through its Oncor electric transmission and distribution subsidiary, represents the company's most significant growth opportunity. The Texas capital plan totals $47.5 billion over the five-year period, an $11 billion increase from prior projections, driving a 17% rate base CAGR to reach $69 billion by 2030.
The dramatic increase in Oncor's capital plan reflects several factors: $6 billion for Permian Basin reliability projects supporting oil and gas production; $2 billion for new transmission projects; $2 billion for distribution system upgrades; and $1 billion for Delaware Basin transmission infrastructure. These investments respond to unprecedented demand growth in Texas, particularly from data centers and large commercial and industrial customers.
Oncor's interconnection queue doubled year-over-year to 273 gigawatts across 650 active requests, with data center and IT customers representing 255 gigawatts of potential load. This extraordinary pipeline of potential demand provides visibility into sustained capital investment opportunities well beyond the current five-year plan.
A significant regulatory milestone was achieved with Oncor's base rate review settlement, which includes a $560 million annualized revenue increase, a 43.5% authorized equity layer (up 100 basis points), and a 9.75% authorized return on equity (up 5 basis points). The settlement details are shown below:
California Operations and Regulatory Environment
While Texas drives growth, Sempra's California utilities -- SDG&E and SoCalGas -- represent the company's established foundation with a combined $23.5 billion capital plan for 2026-2030. SDG&E’s capital investments range from $2.2 billion to $3.1 billion annually, while SoCalGas maintains relatively steady investments of $1.9 billion to $2.3 billion per year.
The California rate base is projected to grow at a more modest 5-6% CAGR for the combined utilities, reaching approximately $41 billion by 2030. This slower growth reflects the more mature market and challenging regulatory environment in California, where the utilities continue to navigate wildfire liability concerns and cost recovery mechanisms.
Despite regulatory headwinds, Sempra achieved a significant legislative victory with Senate Bill 254, which improves the financial backstop for California utilities facing catastrophic wildfire costs. This development provides additional security for both the company and investors concerned about tail-risk events in California's high-risk fire zones.
Forward-Looking Guidance and Outlook
Sempra provided detailed earnings guidance through 2030, demonstrating confidence in its transformation strategy and growth trajectory. For 2026, the company expects adjusted EPS of $4.80 to $5.30, representing 12% growth off the midpoint of 2025 adjusted guidance. The 2027 outlook of $5.10 to $5.70 continues the growth trajectory, with the newly introduced 2030 outlook of $6.70 to $7.50 supporting a 7-9% projected long-term EPS growth rate.
This guidance reflects improving visibility into the company's earnings profile as it transitions toward a more predictable, utility-centric model. The 2030 outlook assumes successful completion of the SI Partners transaction, execution of the capital plan, and realization of operational efficiencies from the "Fit for 2026" cost reduction program.
Sempra also committed to annual common dividend increases of 2-4%, balancing shareholder returns with capital retention for growth investments. The company declared $1.7 billion in common dividends during 2025, and the modest dividend growth policy preserves financial flexibility while providing income-oriented investors with steady return progression.
Balance Sheet Strength and Credit Metrics
Management emphasized balance sheet discipline as a cornerstone of the company's strategy, targeting specific credit metrics to maintain investment-grade ratings and financial flexibility. Key targets include funds from operations (FFO) to debt of 14%, holdco debt to total debt below 25%, and total debt to capitalization under 49%.
The company expects the SI Partners transaction closure and completion of the Oncor base rate review to strengthen credit metrics by reducing consolidated debt and advancing toward the 95% regulated business mix target. Sempra maintains investment-grade ratings from all three major agencies; however Moody's and S&P currently have negative outlooks on parent company rating reflecting concerns about California regulatory risks and pending infrastructure transaction.
Risks and Challenges
While Sempra's presentation emphasized positive developments, several challenges warrant investor attention. The fourth-quarter revenue miss of 11.76% versus expectations suggests potential execution issues or market headwinds not fully addressed in the presentation materials. California operations continue facing regulatory uncertainty, with the potential for adverse decisions in future rate cases that could impact earned returns.
The company's infrastructure segment, which generated negative $160 million in GAAP earnings for 2025 compared to positive $911 million in 2024, faces commodity price volatility and project execution risks. The Port Arthur LNG Phase 2 and ECA LNG Phase 1 projects represent significant capital commitments with inherent construction and market risks.
Additionally, the pending SI Partners and Ecogas transactions face regulatory approval processes and closing conditions that could delay expected proceeds or alter transaction terms. Any material changes to these strategic sales would impact the company's financing plan and potentially necessitate alternative capital sources, including the equity issuances management seeks to avoid.
The transformation to a 95% regulated model, while reducing business volatility, also limits upside participation in commodity markets and constrains growth to jurisdictional rate base expansion -- making regulatory relationships and constructive rate case outcomes increasingly critical to meeting financial targets.