Texas Demand And LNG Projects Will Expand Infrastructure

Key Takeaways

• Rapid Texas growth and grid modernization drive regulated asset expansion, supporting higher margins and long-term revenue amid electrification and decarbonization trends.
  
• LNG project progress and capital recycling at Sempra Infrastructure enhance cash flow, balance sheet strength, and capacity for profitable utility reinvestment.
  
• Heavy utility investment and LNG focus increase regulatory, market, and climate risks, while asset sales and energy transition trends threaten business diversification, earnings stability, and long-term growth.

Catalysts

Operates as an energy infrastructure company in the United States and internationally.

• Strong demand growth in Texas, driven by rapid population increases, urbanization, and large-scale electrification of industry and buildings (including massive data center and C&I load growth), is expected to require multi-billion capital investment in energy infrastructure, directly expanding Sempra's regulated rate base and supporting higher future revenues and earnings.
  
• Legislative and regulatory changes in Texas (notably HB 5247 and the Unified Tracker Mechanism) are set to accelerate the recovery of capital invested in infrastructure, reducing regulatory lag and improving Oncor's earned ROE by 50–100 basis points, which should boost net margins over time.
  
• The rollout and completion of major LNG export projects (ECA Phase 1 nearing completion, Port Arthur Phase 1 advancing, and strong commercial momentum for Phase 2) positions Sempra to benefit from sustained global demand for U.S. LNG as a transition fuel, significantly increasing future cash flows and long-term revenue generation.
  
• Grid modernization, wildfire hardening, and the integration of renewables and storage in California and Texas will expand the company's regulated asset base and enable approved rate increases, supporting both margins and top-line growth as electrification and decarbonization accelerate.
  
• Capital recycling initiatives and potential equity sales at Sempra Infrastructure are expected to unlock additional value, improve the balance sheet, and free up capital for higher-return regulated utility investments, directly supporting credit quality and long-term EPS growth.

Sempra Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Sempra's revenue will grow by 7.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 20.0% today to 22.7% in 3 years time.
• Analysts expect earnings to reach $3.8 billion (and earnings per share of $5.66) by about August 2028, up from $2.7 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.1x on those 2028 earnings, down from 20.2x today. This future PE is lower than the current PE for the US Integrated Utilities industry at 20.5x.
• Analysts expect the number of shares outstanding to grow by 3.01% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.78%, as per the Simply Wall St company report.

Sempra Future Earnings Per Share Growth

Risks

• Sempra's heavy capital allocation to regulated utilities in California and Texas exposes it to long-term regulatory shifts or adverse legislative changes-such as more aggressive decarbonization mandates, cost of capital reductions, or affordability reform-which could compress allowed returns or create unplanned capital outlays, negatively impacting net margins and earnings.
  
• The ongoing sale or deconsolidation of a larger stake in Sempra Infrastructure Partners increases exposure to possible loss of future earnings contributions and reduces business diversification, while timing mismatches in capital recycling and reinvestment could hamper the ability to fund rising utility CapEx efficiently, pressuring both revenue growth and credit metrics.
  
• Sempra's increasing reliance on LNG infrastructure projects and exports (Port Arthur, Cameron, ECA) exposes it to global LNG price and demand volatility, potential changes in global energy policy, shifting geopolitical alliances, and U.S. regulatory risk-all of which may dampen long-term revenue and lead to underutilized, stranded, or devalued assets.
  
• While Sempra cites strong growth opportunities from electrification and Texas data centers, it remains exposed to secular headwinds from energy decentralization, rapid gains in distributed generation, energy efficiency, and public policy shifts favoring local renewables-pressuring long-term volumetric growth and potentially capping or reducing utility rate base and income.
  
• Persistent wildfire and extreme weather risks in California, despite enhancements in mitigation, could result in major unplanned operational or liability costs if a large wildfire occurs, especially if state-fund replenishment or insurance coverage becomes more restrictive, posing significant downside to Sempra's financial results and potentially eroding shareholder value.

Valuation

• The analysts have a consensus price target of $82.885 for Sempra based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $91.0, and the most bearish reporting a price target of just $71.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $16.6 billion, earnings will come to $3.8 billion, and it would be trading on a PE ratio of 19.1x, assuming you use a discount rate of 6.8%.
• Given the current share price of $82.65, the analyst price target of $82.88 is 0.3% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.