Sempra

▲ Bull Case

• ◆Oncor rate base growth exceeds 11% CAGR as Texas demand surprises to the upside. The 233 GW ERCOT queue is unprecedented; data center hyperscalars are committing capital faster than the utility industry expected. If Oncor rate base reaches $75-80B by FY2030 (vs. management's $69B), adj. EPS hits $8.00-9.00 and the stock trades to $160-$180 at 20x — more than doubling.
• ◆Infrastructure stake re-rated as a standalone LNG platform. KKR's 45% stake implies $22.2B equity value ($31.7B EV) for Sempra Infrastructure. If Port Arthur LNG Phase 2 closes on schedule and LNG prices remain elevated, the retained 25% stake ($5.6B) starts getting separately valued by the market as an energy infrastructure asset — adding $8-10/share of sum-of-parts value not currently captured.
• ◆California risk resolves or slows enough to become irrelevant. If SoCalGas gas transition is delayed by California grid reliability concerns (winter 2026 peak demand, CAISO warnings), the pace of regulatory headwinds slows materially. At a stable California baseline, SRE's blended P/E re-rates toward peers (NEE, SO, DUK) at 20-21x → $108-114 per share.

▼ Bear Case

• ◆Texas demand growth disappoints from AI overbuilding. If the current AI/data center capital spending cycle peaks and hyperscalars slow data center construction in Texas, ERCOT demand growth reverts from 4-5% to 1-2%. Oncor's $65B capex program is re-scoped downward. Rate base CAGR slows from 11% to 6-7%. EPS growth slows to 4-5% → P/E compresses to 15-16x → stock at $80-85.
• ◆10-year Treasury rises to 5.0%+ and utility multiples compress 2x P/E. Every 50bps increase in the risk-free rate compresses utility P/E by approximately 1-1.5x. From 4.3% to 5.0% (75bps) implies a 1.5-2x P/E compression: from 17x to 15-15.5x. At 15x FY2027E $5.40 = $81 → bear case from rates alone.
• ◆CPUC adverse SoCalGas ruling accelerates gas system retirement. If CPUC mandates accelerated gas system abandonment with stranded cost write-downs, the California utility segment ($3-4B net asset value) faces impairment. California adj. EPS could fall 40-50% faster than base case, creating a $0.80-1.20/share EPS headwind.

“Does Oncor's exceptional growth trajectory justify a premium over the California risk discount, making SRE a core utility BUY? Or does the California/SoCalGas long-term liability cap the P/E ceiling? The bull says: Oncor is adding $30B in rate base over 6 years with a supportive regulator; the California risk is manageable and declining as SoCalGas shrinks naturally; the Infrastructure monetization eliminated the balance sheet concern. At 16.7x FY2027E EPS with 7-9% CAGR, the stock is simply cheap. The bear says: California regulatory deterioration is structural and accelerating; SoCalGas has >$15B in asset value that may need to be written down as gas transition accelerates; the LNG Infrastructure is an execution risk that could absorb management attention and capital; rising interest rates are a structural headwind for utility multiples. Both camps agree: Oncor is exceptional. The debate is entirely about whether the California liability/LNG execution risk justifies the ~15-25% discount to peers like NextEra.”

• ◆Q2-Q3 2026: Infrastructure stake sale close ($10B cash) — confirms equity dilution resolution and financial flexibility through 2029
• ◆Q2 2026 earnings: First Oncor rate case revenue uplift quarter reflecting +$560M revenue increase from April 2026 PUCT outcome
• ◆Q3 2026 earnings: Full Oncor rate case run-rate established; potential FY2026 guidance revision above $5.05 midpoint
• ◆FY2026 year-end: Full-year actuals + FY2027 guidance confirming 7-9% EPS CAGR trajectory
• ◆FY2027: Investor Day / long-range guidance update with potential FY2030 guidance upgrade if Texas demand exceeds plan
• ◆2027-2028: Next Oncor PUCT rate case — confirms or re-rates the 9.75% authorized ROE
• ◆2030-2031: Port Arthur LNG Phase 2 COD — Sempra Infrastructure platform fully operational; retained 25% stake value recognized

• ◆Texas demand growth slowdown (AI overbuild): ERCOT demand reverts to 1-2%; Oncor capex re-scoped; EPS growth 4-5% → P/E 15-16x → stock $80-85 (severity MEDIUM, probability 25-30%)
• ◆10yr Treasury rises to 5%+: Utility P/E compression ~1.5-2x; at 15x FY2027E $5.40 = $81 bear case from rates alone (severity MEDIUM, probability 20%)
• ◆CPUC adverse SoCalGas gas retirement mandate with stranded cost write-downs >$3B: California segment impairment; $0.80-1.20/share EPS headwind (severity MEDIUM-HIGH long-term, probability 20-25% over 3 years)
• ◆LNG Phase 2 construction delay or cost overrun: execution risk; absorbs management attention and capital (severity MEDIUM, probability 25%)
• ◆PUCT adverse rate case outcome (2027-2028): ROE below 9.0% would be a kill-switch sell trigger (severity HIGH if triggered, probability 10%)
• ◆Infrastructure sale falls through: very low probability given KKR/CPP/ADIA institutional quality and signed agreement (severity HIGH if triggered, probability 5%)
• ◆Credit downgrade at HoldCo level: leverage metrics deterioration flagged by S&P/Moody's (severity LOW-MEDIUM, probability 5%)