SRE Leaps 19% In One Month, Time To Buy The Stock?

We believe there are several things to fear in SRE stock given its overall Weak operating performance and financial condition. Hence, despite its Moderate valuation, this makes the stock look Risky. Here is our multi-factor assessment.

SRE stock has jumped meaningfully recently and we currently find it risky. This may feel like a caution, and there is significant risk in relying on a single stock. However, there is a huge value to a broader diversified approach we take with Trefis High Quality Portfolio. Trefis works with Empirical Asset Management – a Boston area wealth manager – whose asset allocation strategies yielded positive returns during the 2008-09 period when the S&P lost more than 40%. Empirical has incorporated the Trefis HQ Portfolio in this asset allocation framework to provide clients better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Let’s get into details of each of the assessed factors but before that, for quick background: With $61 Bil in market cap, Sempra operates as an energy-services holding company providing electric services, natural gas supply, and managing natural gas distribution, transmission, and storage systems in the U.S. and internationally.

[1] Valuation Looks Moderate

This table highlights how SRE is valued vs broader market. For more details see: SRE Valuation Ratios

[2] Growth Is Very Weak

• Sempra has seen its top line shrink at an average rate of -0.8% over the last 3 years
• Its revenues have fallen -1.0% from $13 Bil to $13 Bil in the last 12 months
• Also, its quarterly revenues declined -0.4% to $3.0 Bil in the most recent quarter from $3.0 Bil a year ago.

This table highlights how SRE is growing vs broader market. For more details see: SRE Revenue Comparison

[3] Profitability Appears Very Strong

• SRE last 12 month operating income was $3.0 Bil representing operating margin of 22.8%
• With cash flow margin of 34.9%, it generated nearly $4.7 Bil in operating cash flow over this period
• For the same period, SRE generated nearly $2.7 Bil in net income, suggesting net margin of about 20.4%

This table highlights how SRE profitability vs broader market. For more details see: SRE Operating Income Comparison

[4] Financial Stability Looks Weak

• SRE Debt was $39 Bil at the end of the most recent quarter, while its current Market Cap is $61 Bil. This implies Debt-to-Equity Ratio of 62.9%
• SRE Cash (including cash equivalents) makes up $155 Mil of $100 Bil in total Assets. This yields a Cash-to-Assets Ratio of 0.2%

[4] Downturn Resilience Is Moderate

SRE saw an impact slightly better than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.

2022 Inflation Shock

• SRE stock fell 25.7% from a high of $87.83 on 12 September 2022 to $65.27 on 2 October 2023 vs. a peak-to-trough decline of 25.4% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 6 November 2024
• Since then, the stock increased to a high of $94.77 on 25 November 2024 , and currently trades at $94.01

 
2020 Covid Pandemic

• SRE stock fell 45.0% from a high of $80.56 on 30 January 2020 to $44.31 on 16 March 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 25 March 2022

 
2008 Global Financial Crisis

• SRE stock fell 44.2% from a high of $33.15 on 25 April 2007 to $18.50 on 27 October 2008 vs. a peak-to-trough decline of 56.8% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 8 June 2012

But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read SRE Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – S&P 500, Russell, and S&P midcap. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.