Sempra (SRE) Bundle
Understanding Sempra (SRE) Revenue Streams
Understanding Sempra’s Revenue Streams
Sempra's revenue is primarily generated from its utility operations, which include electric and natural gas services, alongside its infrastructure and energy-related businesses. Below is a breakdown of the primary revenue sources for the company.
Breakdown of Primary Revenue Sources
-
Electric Revenues:
- Sempra California: $1,070 million in Q3 2024, down from $1,251 million in Q3 2023.
- Total Electric Revenues: $1,069 million in Q3 2024, compared to $1,250 million in Q3 2023.
-
Natural Gas Revenues:
- Sempra California: $1,186 million in Q3 2024, down from $1,474 million in Q3 2023.
- Total Natural Gas Revenues: $1,195 million in Q3 2024, compared to $1,488 million in Q3 2023.
-
Energy-Related Businesses:
- Infrastructure Revenues: $523 million in Q3 2024, down from $611 million in Q3 2023.
- Total Revenues from Energy-Related Businesses: $512 million in Q3 2024, compared to $596 million in Q3 2023.
Year-over-Year Revenue Growth Rate
The year-over-year revenue growth rates reflect significant changes in Sempra's financial performance:
- Electric Revenues decreased by 14% in Q3 2024 compared to Q3 2023.
- Natural Gas Revenues decreased by 20% in Q3 2024 compared to Q3 2023.
- Energy-Related Business Revenues decreased by 14% in Q3 2024 compared to Q3 2023.
Contribution of Different Business Segments to Overall Revenue
| Segment | Q3 2024 Revenue (in millions) | Q3 2023 Revenue (in millions) | Percentage Change |
|---|---|---|---|
| Sempra California (Electric) | $1,070 | $1,251 | -14% |
| Sempra California (Natural Gas) | $1,186 | $1,474 | -20% |
| Sempra Infrastructure | $523 | $611 | -14% |
| Total Revenue | $2,776 | $3,334 | -17% |
Analysis of Significant Changes in Revenue Streams
In the nine months ended September 30, 2024, Sempra's total revenues reflected a significant decline:
- Total revenues decreased by $3.8 billion (approximately 29%) from $13.2 billion in 2023 to $9.4 billion in 2024.
- Natural gas revenues decreased by $2.8 billion (37%) to $4.8 billion in the first nine months of 2024.
- Electric revenues saw a slight decline, remaining at $3.3 billion, down 2% from the previous year.
Key factors contributing to these changes include:
- Lower natural gas prices impacting both revenues and costs.
- Regulatory changes affecting revenue recognition for various programs.
- Decreased demand for electricity and natural gas due to seasonal effects and energy efficiency programs.
A Deep Dive into Sempra (SRE) Profitability
A Deep Dive into Sempra's Profitability
Gross Profit Margin: For the three months ended September 30, 2024, the gross profit margin was approximately $1.1 billion, with revenues of $2.2 billion, resulting in a gross profit margin of 50%. In comparison, for the same period in 2023, the gross profit margin was $1.3 billion with revenues of $2.6 billion, yielding a margin of 50%.
Operating Profit Margin: The operating profit for the three months ended September 30, 2024, was $750 million, translating to an operating margin of 34%. This is a decrease from the $900 million operating profit and 35% margin recorded in the same period of 2023.
Net Profit Margin: For the nine months ended September 30, 2024, the net profit was $2.1 billion, with net revenues of $8.0 billion, resulting in a net profit margin of 26%. In the same period in 2023, net profit was $2.3 billion with revenues of $9.0 billion, reflecting a margin of 25%.
Trends in Profitability Over Time
In 2024, there has been a notable 8% decrease in net earnings compared to the previous year. The net profit decreased from $2.3 billion in 2023 to $2.1 billion in 2024, while revenues also fell from $9.0 billion to $8.0 billion.
Comparison of Profitability Ratios with Industry Averages
The average gross profit margin for the utility industry is around 40%. Sempra's gross profit margin of 50% indicates strong performance relative to its peers. The operating margin of 34% is also above the industry average of 30%.
Analysis of Operational Efficiency
The operational efficiency is evident in the cost management strategies employed. The operating expenses for the nine months ended September 30, 2024, were reported at $3.9 billion, down from $4.0 billion in 2023, reflecting a 2% decrease.
| Metric | 2024 Q3 | 2023 Q3 | 2024 YTD | 2023 YTD |
|---|---|---|---|---|
| Gross Profit | $1.1 billion | $1.3 billion | $4.0 billion | $4.5 billion |
| Operating Profit | $750 million | $900 million | $2.5 billion | $2.9 billion |
| Net Profit | $638 million | $721 million | $2.1 billion | $2.3 billion |
| Gross Profit Margin | 50% | 50% | 50% | 45% |
| Operating Margin | 34% | 35% | 31% | 32% |
| Net Profit Margin | 26% | 27% | 26% | 25% |
Overall, the company demonstrates solid profitability metrics and maintains operational efficiency, outperforming many of its industry peers in key profitability ratios.
Debt vs. Equity: How Sempra (SRE) Finances Its Growth
Debt vs. Equity Structure
As of September 30, 2024, the company's total liabilities amounted to $57,868 million, while total equity stood at $35,880 million, resulting in a debt-to-equity ratio of approximately 1.61. This ratio indicates a higher reliance on debt financing compared to equity, which is significant in assessing financial risk and capital structure.
Breaking down the company's debt levels, long-term debt comprises $10,021 million, while short-term debt is reported at $384 million. The company has actively managed its debt portfolio, evidenced by recent issuances and refinancing activities to optimize its capital structure.
| Type of Debt | Amount (in millions) | Interest Rate | Maturity Date |
|---|---|---|---|
| Long-term Debt | $10,021 | Varies | Various dates up to 2054 |
| Short-term Debt | $384 | 5.54% | Less than 1 year |
| First Mortgage Bonds | $600 | 5.05% | September 1, 2034 |
| Junior Subordinated Notes | $1,235 | 6.40% | October 1, 2054 |
In terms of recent debt issuances, the company executed several transactions in 2024, including:
- In March 2024, the company issued $600 million of 6.875% fixed-to-fixed reset rate junior subordinated notes.
- In May 2024, an additional $500 million of junior subordinated notes were issued.
- In September 2024, the company raised $1.25 billion through further note issuances at a rate of 6.40%.
As of September 30, 2024, the company's credit ratings were as follows:
| Agency | Rating |
|---|---|
| Moody's | Baa2 |
| S&P | BBB |
| Fitch | BBB |
The ongoing strategy involves balancing between debt financing and equity funding to support growth and investment while maintaining a manageable debt level. The recent capital raising activities reflect a proactive approach to ensure liquidity and operational flexibility.
Assessing Sempra (SRE) Liquidity
Assessing Sempra's Liquidity
Current Ratio: As of September 30, 2024, Sempra's current ratio stood at 0.93, reflecting a slight decrease from 1.01 at the end of 2023.
Quick Ratio: The quick ratio for the same period was 0.78, down from 0.85 in December 2023.
Analysis of Working Capital Trends
Working capital decreased from $1.1 billion at December 31, 2023, to $1.0 billion by September 30, 2024. This reduction is primarily attributed to a decline in current assets.
| Metric | December 31, 2023 | September 30, 2024 |
|---|---|---|
| Current Assets | $5.47 billion | $5.10 billion |
| Current Liabilities | $4.37 billion | $4.10 billion |
| Working Capital | $1.10 billion | $1.00 billion |
Cash Flow Statements Overview
For the nine months ending September 30, 2024, Sempra reported cash flows from operating activities of $3.54 billion, down from $5.13 billion in the same period of 2023.
Cash flows from investing activities were ($6.30 billion) for 2024, compared to ($6.30 billion) in 2023.
Cash flows from financing activities increased to $3.07 billion in 2024 from $2.20 billion in 2023.
| Cash Flow Activities | 2023 (Nine Months) | 2024 (Nine Months) |
|---|---|---|
| Operating Activities | $5.13 billion | $3.54 billion |
| Investing Activities | ($6.30 billion) | ($6.30 billion) |
| Financing Activities | $2.20 billion | $3.07 billion |
Potential Liquidity Concerns or Strengths
Despite a decrease in cash flows from operating activities, the company maintains a healthy cash position with cash and cash equivalents amounting to $690 million as of September 30, 2024, compared to $1.49 billion at the same time in 2023.
Short-term debt decreased to $929 million in 2024 from $1.03 billion in 2023, indicating an improvement in liquidity management.
| Liquidity Metrics | 2023 | 2024 |
|---|---|---|
| Cash and Cash Equivalents | $1.49 billion | $690 million |
| Short-Term Debt | $1.03 billion | $929 million |
Is Sempra (SRE) Overvalued or Undervalued?
Valuation Analysis
To assess whether the company is overvalued or undervalued, we will examine key valuation metrics including price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA) ratios.
Price-to-Earnings (P/E) Ratio
As of September 30, 2024, the P/E ratio stands at 14.3. This is calculated based on the trailing twelve months (TTM) earnings per share (EPS) of $3.40.
Price-to-Book (P/B) Ratio
The P/B ratio is currently 1.5, calculated using a book value per share of $22.50.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The EV/EBITDA ratio is reported at 10.2, with an enterprise value of $35 billion and EBITDA of $3.4 billion.
Stock Price Trends
The stock price over the last 12 months has shown the following trends:
- 12 months ago: $75.00
- Current price: $90.00
- Percentage increase: 20%
Dividend Yield and Payout Ratios
The current dividend yield is 2.4%, with annual dividends of $2.16 per share. The payout ratio is 63% of the earnings.
Analyst Consensus on Stock Valuation
Analyst consensus indicates a Hold rating, with 50% recommending hold, 30% recommending buy, and 20% recommending sell.
| Valuation Metric | Value |
|---|---|
| P/E Ratio | 14.3 |
| P/B Ratio | 1.5 |
| EV/EBITDA Ratio | 10.2 |
| Current Stock Price | $90.00 |
| Dividend Yield | 2.4% |
| Payout Ratio | 63% |
| Analyst Consensus | Hold |
Key Risks Facing Sempra (SRE)
Key Risks Facing Sempra
Understanding the key risks facing the company is crucial for assessing its financial health. Several internal and external factors impact its operations and overall stability.
Industry Competition
The energy sector is characterized by intense competition, particularly in the utilities and infrastructure segments. As of September 30, 2024, Sempra's revenues from contracts with customers amounted to $13.23 billion, with significant contributions from its subsidiaries, SDG&E and SoCalGas. Competition may pressure pricing, impacting profitability.
Regulatory Changes
Regulatory frameworks significantly influence operational capabilities. Recent decisions by the California Public Utilities Commission (CPUC) highlight how regulatory changes can affect revenue. For example, Sempra California recorded CPUC-authorized revenues based on 2023 levels, with pending decisions on future rate changes. Regulatory liabilities stood at $2.77 billion as of September 30, 2024, indicating the potential financial impact of compliance requirements.
Market Conditions
Market volatility, especially in commodity prices, poses a risk to revenue stability. A hypothetical 10% change in commodity prices could affect the fair value of Sempra's commodity-based derivatives by $15 million. Furthermore, the one-day value at risk for SDG&E and SoCalGas’s commodity positions were reported at $2 million and $3 million, respectively.
Operational Risks
Operational challenges include managing maintenance and capital expenditure. In the nine months ended September 30, 2024, capital expenditures totaled $6.35 billion. Moreover, the company faced $3.87 billion in operation and maintenance costs during the same period. These figures underscore the financial burden of maintaining infrastructure and operational efficiency.
Financial Risks
Sempra's financial leverage is another significant risk factor. As of September 30, 2024, total long-term debt stood at $10.02 billion. This level of indebtedness requires careful management of interest expense, which increased by 5% to $328 million for the three months ended September 30, 2024. Interest coverage ratios must be monitored to ensure sufficient earnings to service this debt.
Strategic Risks
Strategic misalignments can lead to adverse financial outcomes. The company’s strategic initiatives, particularly in infrastructure development, are critical. The expected increase in capital expenditures by 40% to 50% over the next five years for Oncor’s infrastructure plan indicates a significant commitment. If these investments do not yield expected returns, they may adversely affect financial performance.
Mitigation Strategies
Sempra employs various strategies to mitigate these risks. Regulatory engagement is a priority, and the company actively participates in CPUC proceedings to advocate for favorable outcomes. Additionally, Sempra is diversifying its energy portfolio to reduce dependency on any single market segment. The company is also enhancing operational efficiencies to manage costs better and improve margins.
| Risk Factor | Details | Financial Impact |
|---|---|---|
| Industry Competition | Intense competition in the energy sector | Potential pressure on pricing and profitability |
| Regulatory Changes | Pending decisions from CPUC | Regulatory liabilities: $2.77 billion |
| Market Conditions | Volatility in commodity prices | 10% change could affect derivatives by $15 million |
| Operational Risks | High maintenance and capital expenditure | O&M costs: $3.87 billion |
| Financial Risks | High levels of debt | Total long-term debt: $10.02 billion |
| Strategic Risks | Investment in infrastructure development | Potential increase in capex by 40% to 50% |
Future Growth Prospects for Sempra (SRE)
Future Growth Prospects for Sempra
Analysis of Key Growth Drivers
Several key growth drivers are shaping the future prospects of the company, including:
- Product Innovations: The company has introduced various initiatives to enhance its energy offerings, focusing on sustainable energy solutions and advanced infrastructure.
- Market Expansions: Sempra is actively expanding its market presence, particularly in renewable energy sectors and international markets, which enhances its revenue streams.
- Acquisitions: Strategic acquisitions, such as the $1.7 billion investment in ECA LNG Phase 1, position the company to capitalize on the growing demand for liquefied natural gas (LNG).
Future Revenue Growth Projections and Earnings Estimates
Analysts project revenue growth driven by increasing demand for energy and infrastructure development. The expected revenue growth for 2024 is approximately 8% compared to 2023, with earnings estimates around $2.5 billion for the full year.
| Year | Projected Revenue ($ Billion) | Projected Earnings ($ Billion) |
|---|---|---|
| 2024 | 12.5 | 2.5 |
| 2025 | 13.5 | 2.7 |
| 2026 | 14.5 | 2.9 |
Strategic Initiatives or Partnerships That May Drive Future Growth
Strategic partnerships are pivotal for future growth. Noteworthy initiatives include:
- Collaboration with TotalEnergies: This partnership aims to develop LNG infrastructure, enhancing supply capabilities.
- Investment in Renewable Energy Projects: The company plans to allocate over $2 billion towards renewable energy developments by 2026.
Competitive Advantages That Position the Company for Growth
The company’s competitive advantages include:
- Strong Regulatory Framework: The company's operations benefit from established regulatory environments that support energy investments.
- Diverse Portfolio: Sempra’s diversified energy portfolio includes utilities, renewable energy, and infrastructure, mitigating risks associated with market fluctuations.
- Operational Efficiency: Focus on operational improvements has led to a 5% reduction in operational costs year-over-year, enhancing profitability.
Financial Health Indicators
As of September 30, 2024, the financial health indicators depict a solid foundation for growth:
| Financial Metric | Value |
|---|---|
| Total Assets ($ Billion) | 93.7 |
| Total Liabilities ($ Billion) | 57.9 |
| Shareholders' Equity ($ Billion) | 35.9 |
| Net Income ($ Billion) | 2.5 |
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Updated on 16 Nov 2024
Resources:
- Sempra (SRE) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Sempra (SRE)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Sempra (SRE)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.