What is SRE's Intrinsic value?

Sempra Energy (SRE) Intrinsic Value Analysis

Executive Summary

As of April 4, 2026, Sempra Energy's estimated intrinsic value ranges from $31.53 to $117.03 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $80.14 -19.2%
Discounted Cash Flow (5Y) $104.55 +5.4%
Dividend Discount Model (Multi-Stage) $31.53 -68.2%
Dividend Discount Model (Stable) $117.03 +18.0%

Is Sempra Energy (SRE) undervalued or overvalued?

With the current market price at $99.20, the stock appears to be moderately overvalued.

Understanding Intrinsic Value

Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate Sempra Energy's intrinsic value, including:

  1. Discounted Cash Flow (DCF): Values the company based on projected future cash flows
  2. Dividend Discount Model (DDM): Values the company based on expected future dividend payments

Weighted Average Cost of Capital (WACC)

The cost of capital is a critical factor in valuation models, representing the required return for investors.

WACC Component Low High
Long-term bond rate 3.9% 4.4%
Equity market risk premium 4.6% 5.6%
Adjusted beta 0.39 0.45
Cost of equity 5.7% 7.4%
Cost of debt 4.0% 5.1%
Tax rate 32.3% 42.9%
Debt/Equity ratio 0.56 0.56
After-tax WACC 4.6% 5.8%

Valuation Methods

1. Discounted Cash Flow (DCF) Valuation

Our DCF model projects cash flows over 5-year and 10-year horizons, with the following key assumptions:

  • Forecast Period: 5-year DCF and 10-year DCF
  • Terminal Growth Rate: 0.0% (range: 3.0% - 5.0%)
  • Discount Rate: 5.2% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $11,871 (FY12-2025) to $18,557 (FY12-2035)
  • Net profit margin expansion from 4% to 6%
  • Capital expenditures maintained at approximately 69% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $105 $103,291M 91.4%
10-Year Growth $80 $87,343M 82.4%
5-Year EBITDA $61 $74,851M 88.2%
10-Year EBITDA $64 $76,517M 79.9%

2. Dividend Discount Model (DDM)

The DDM values a company based on its expected future dividend payments. We used two approaches:

Multi-Stage DDM:

  • Current payout ratio: 89.4%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 6.5%
  • Long-term growth rate: 3.4%
  • Fair value: $31.53 (-68.2% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 7.4% (Low) to 5.7% (High)
  • Long-term growth rate: 2.5% (Low) to 4.4% (High)
  • Fair value range: $40 to $194
  • Selected fair value: $117.03 (18.0% from current price)

Key Financial Metrics

Metric Value
Market Capitalization $64805M
Enterprise Value $99797M
Trailing P/E 35.28
Forward P/E 90.20
Trailing EV/EBITDA 6.70
Current Dividend Yield 262.31%
Dividend Growth Rate (5Y) 3.53%
Debt-to-Equity Ratio 0.56

Investment Decision Framework

To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:

  1. Forecast Certainty: DCF methods rely on long-term projections, while earnings power value focuses on current normalized earnings
  2. Business Model Alignment: Dividend models are more appropriate for mature companies with established dividend policies
  3. Historical Accuracy: How well each method has predicted fair value historically

Valuation Weight Matrix

Valuation Method Weight Weighted Value
Discounted Cash Flow (10Y) 33% $24.04
Discounted Cash Flow (5Y) 28% $26.14
Dividend Discount Model (Multi-Stage) 22% $6.31
Dividend Discount Model (Stable) 17% $17.55
Weighted Average 100% $82.26

Investment Conclusion

Based on our comprehensive valuation analysis, Sempra Energy's intrinsic value is $82.26, which is approximately 17.1% below the current market price of $99.20.

Key investment considerations:

  • Strong projected earnings growth (4% to 6% margin)
  • Consistent cash flow generation
  • Historical dividend growth of 3.53%

Given these factors, we believe Sempra Energy is currently moderately overvalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.