Sempra (SRE) | The Buildout — AI Infrastructure
The Verdict
Sempra is a holding company whose regulated utilities deliver electricity and natural gas in California and Texas, with an energy-infrastructure arm in LNG and low-carbon solutions. For the AI buildout, its role is indirect: Oncor, Sempra's Texas transmission and distribution investment, is positioned to build and earn on the high-voltage infrastructure that connects large data-center loads to the ERCOT grid. Management says the corporate strategy is shifting toward a pure-play U.S. utility business, with Texas as the dominant rate-base concentration by the end of the decade.
| Market Cap | — |
| Revenue (TTM) | $13.6B |
| Revenue Growth | +3.1% |
| EBITDA Margin (TTM) | 43.7% |
| Net Debt | $35.6B |
| Earnings Beats | 5 of 7 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- Management expects almost 60% of rate base in Texas by decade-end, with a $65B capital plan.
- Oncor base capital plan is $47.5B, with earnings growth described as 30% annually through the midpoint of 2027 guidance.
- Texas final order set a 9.75% ROE and 43.5% equity layer; SDG&E's uncontested FERC TO6 settlement would set a 10.28% ROE retroactive to June 1, 2025 if approved.
- Inaugural Oncor UTM filing incorporates $4.4B of T&D assets placed in service since January 1, 2025.
- Oncor secured the first three years of its base-plan supply chain and ordered or acquired 765-kV equipment early.
What We’re Watching
- The stated 127 GW substantiated load does not arithmetically tie to its stated parts of 102.22 GW plus 5.2 GW.
- August 2026 update on the approximately $10B incremental bucket will show how much queue becomes project work.
- California GRC filing slipped from May to June 2026, with no specific rate ask disclosed.
- KKR/SI Partners close still needs Cameron partner and Japanese export credit agency consents; expected Q2–Q3 2026.
The source material reads the quarter as normal but directionally stronger forward. The thesis is intact because the Texas rate order and UTM are now real, but it has not been upgraded because guidance was affirmed and data-center load remains optionality. The key open question is whether the ERCOT Batch 0 process converts the stated load into Oncor base-plan projects on the timeline management described.
Earnings Beat
Sempra reported Q1 2026 revenue of $3,655 million, down from $3,798 million a year earlier, while gross margin widened to 35.6% from 30.6%. GAAP diluted EPS was $1.58, up from $1.39, and adjusted EPS was $1.51 versus $1.44.
| Metric | Q1 FY2026 | Q4 FY2025 | Q1 FY2025 | YoY |
|---|---|---|---|---|
| Revenue | $3.7B | $3.8B | $3.8B | −3.8% |
| Gross margin | 35.6% | 34.4% | 30.6% | +500bps |
| EBITDA | $1.7B | $1.7B | $1.6B | +6.4% |
| EPS | $1.76 | $0.54 | $1.40 | +25.3% |
| Oncor substantiated ERCOT load | 127 GW | ~38 GW | n/a | — |
We are affirming our full-year 2026 adjusted EPS guidance range of $4.8 to $5.3 and 2027 EPS guidance range of $5.1 to $5.7. We are also affirming our projected long-term EPS growth rate of 7% to 9%.— Karen Sedgwick, CFO, 2026-05-07
Management tone: Management came across as confident and execution-focused, and was direct on load-quality comparability and KKR approval status. It was candid that labor is tight and ERCOT rules could still change. Because the two supplied transcripts are identical, quarter-over-quarter tone shift cannot be reliably assessed.
Management Guidance
Management affirmed full-year 2026 adjusted EPS of $4.80–$5.30, 2027 EPS of $5.10–$5.70, and long-term EPS growth of 7%–9%. The 2026 GAAP EPS range is $4.87–$5.37. The adjusted guidance excludes foreign currency and inflation impacts in Mexico, commodity-derivative gains and losses, interest-rate swap losses tied to Port Arthur LNG Phase 1, and held-for-sale tax items.
Trajectory
The data spine tags Sempra's revenue trajectory as decelerating: revenue fell 2.9% QoQ in Q1 2026 to $3,655 million after an 18.3% QoQ gain in Q4 2025. Margins expanded sharply, with gross margin at 35.6% versus 30.6% a year earlier and EBITDA margin at 46.8% versus 42.3%. The current earnings improvement is being led by regulatory recovery and Texas capital deployment rather than utility volumes, while Sempra Infrastructure's near-term earnings benefit partly from held-for-sale accounting.
The Model
The model projects FY+1 revenue of $13,200M and EBITDA of $6,006M, a 45.5% EBITDA margin. FY+2 is revenue of $12,900M and EBITDA of $6,011M, a 46.6% margin. The FY+1 projection is anchored by the regulated capital plan and Texas rate recovery; FY+2 holds EBITDA roughly flat on lower revenue, implying a higher margin assumption.
| Metric | FY2025 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $13.7B | $13.2B | $12.9B |
| YoY Growth | — | −4.0% | −2.3% |
| EBITDA | $5.8B | $6.0B | $6.0B |
| EBITDA Margin | 42.5% | 45.5% | 46.6% |
Projections are the median of 5 independent model runs. The model’s revenue sits 4.3% below analyst consensus.
Management affirmed full-year 2026 adjusted EPS of $4.80–$5.30, 2027 EPS of $5.10–$5.70, and long-term EPS growth of 7%–9%. The 2026 GAAP EPS range is $4.87–$5.37. The adjusted guidance excludes foreign currency and inflation impacts in Mexico, commodity-derivative gains and losses, interest-rate swap losses tied to Port Arthur LNG Phase 1, and held-for-sale tax items.
What Could Go Right — and Wrong
- A verified, reconciled version of the 127 GW substantiated load converts into Oncor projects through the ERCOT Batch 0 process.
- The August 2026 update formalizes a larger incremental bucket than the already-cited $10B.
- KKR/SI Partners close completes, deconsolidates Sempra Infrastructure, and accelerates parent debt paydown.
- The California GRC filing is constructive and wildfire legislation passes.
- Port Arthur Phase 2 offtake moves from active discussions to signed contracts.
- ERCOT or PUCT rule changes shrink the qualifying load pool or delay Batch 0.
- The stated substantiated load cannot be reconciled to its 102.22 GW plus 5.2 GW components.
- Texas generation cannot be coordinated with transmission, causing large loads to slip out of the planning window.
- A KKR transaction delay keeps Sempra Infrastructure consolidated and delays balance-sheet repair.
- A failed or unfavorable California GRC, or no wildfire legislation, re-focuses risk on California.
Looking Ahead
The next 12 months hinge on regulatory milestones rather than quarterly utility volumes. Management expects an August 2026 update on the incremental capital bucket, a potential Oncor UTM hearing in August and final or interim rates around October 4, 2026, a California GRC filing in June 2026, and the SI Partners/KKR close expected in Q2–Q3 2026. The ERCOT Batch 0 process then runs from July 2026 study work through a February 2027 load commitment period to a June 2027 RPG submission.
- Q2–Q3 2026SI Partners / KKR close — Deconsolidation and parent debt paydown; Cameron and Japanese ECA consents remained outstanding.
- August 20, 2026Oncor UTM hearing — Procedural step toward a final order and updated rates.
- October 4, 2026Oncor UTM interim rates — Fallback if no final order before then.
- H2 2026SDG&E FERC TO6 decision — Approval expected H2 2026; settlement retroactive to June 1, 2025.
- Late 2026 / early 2027Rating agency threshold review — Post-close plus about six months; expected by late 2026 / early 2027.
- February 2027ERCOT Batch 0 load commitment — About a 30-day load commitment period in February 2027.
Financials
Annual Summary
| Metric | FY2024 | FY2025 | TTM | YoY |
|---|---|---|---|---|
| Revenue | $13.0B | $13.7B | $13.6B | +6.1% |
| Gross Margin | 26.6% | 28.9% | 30.6% | +240bps |
| EBITDA | $5.3B | $5.8B | $46.3B | +11.0% |
| EBITDA Margin | 40.7% | 42.5% | 43.7% | +187bps |
| Net Income | $2.9B | $1.8B | $2.1B | -35.8% |
| Free Cash Flow | −$3.3B | −$6.0B | −$22.2B | — |
| Net Cash | — | — | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)30.6%
- EBITDA Margin (TTM)43.7%
- Net Margin (TTM)15.2%
- ROIC4.0%
- FCF Conversion-98.2%
- SBC / Revenue0.3%
The Company
Sempra is a holding company whose principal businesses are regulated utilities in California and Texas, plus energy infrastructure through Sempra Infrastructure. Its California utilities are SDG&E and SoCalGas; SDG&E provides electric service to roughly 3.6 million population and natural gas service to roughly 3.3 million, while SoCalGas serves roughly 21.3 million population. In Texas, Sempra holds equity-method investments in Oncor Holdings and Sharyland Holdings, with Oncor operating regulated transmission and distribution across north-central, eastern, western, and panhandle Texas.
The company is shifting to a pure-play U.S. utility model. Management says Texas will approach almost 60% of rate base by decade-end, supported by a total $65B capital plan and a $47.5B Oncor base plan. Sempra also owns LNG and energy networks through Sempra Infrastructure, including Cameron LNG, ECA LNG, and Port Arthur LNG, and is selling a 45% stake in Sempra Infrastructure Partners to KKR.
Business Segments
Competitive Landscape
The provided source material does not name specific competitors. It does include a utilities/power-producers peer cohort of 14 companies, but the sources do not list those names. Arizona Public Service Company and Imperial Irrigation District are named in the source material as California transmission-sharing counterparties rather than direct competitors.
Supply Chain
Sempra's named counterparties in the source material are primarily utility service territories and LNG offtake or service customers, plus a long-term LNG supply agreement with Tangguh PSC. No single external customer accounts for 10% or more of total revenues.