Sempra SRE
Verdict: Sell. Fair value $95.74 against a price of $87.76 on 6 Jan 2026, 9% above the price.
In plain words
The case for: Wide competitive moat provides durability. Market leadership enables pricing power. Industry tailwinds with growing market.
The case against: The OCF/Net Income ratio exhibited extreme volatility, collapsing to 0.53 in 2022 before surging to.... In 2024, revenue declined sharply by 21% (from $16.72B to $13.19B), yet Net Income only decreased.... In 2022, the company converted only 53 cents of cash for every dollar of reported net income....
Main risks
- Massive and Worsening Negative Free Cash Flow: FCF is deeply negative (-$4.91B TTM) due to CapEx ($9.65B) that is more than double the Operating Cash Flow ($4.74B), indicating a heavy reliance on external financing for its investment cycle.
- Extremely Poor Returns on Capital: The estimated ROIC of 2.5% is well below the typical cost of capital for a utility, suggesting current operations are destroying shareholder value. The 3-year ROIIC of just 0.6% is a severe red flag, indicating that massive recent investments have generated virtually no incremental profit.
- High Leverage and Recent Revenue Contraction: Debt/Equity is elevated at 1.15x and the estimated Net Debt/EBITDA ratio is a very high 7.6x. This high leverage is particularly risky given the sharp 21% YoY revenue decline in 2024, which breaks the prior growth trend.
- The OCF/Net Income ratio exhibited extreme volatility, collapsing to 0.53 in 2022 before surging to...
- In 2024, revenue declined sharply by 21% (from $16.72B to $13.19B), yet Net Income only decreased...
- The OCF/Net Income ratio exhibited extreme volatility, collapsing to 0.53 in 2022 before surging to 2.02 in 2023. This indicates that reported GAAP earnings are being significantly impacted by large, fluctuating non-cash items, making year-over-year profit comparisons unreliable and questioning the underlying earnings quality.