SRE, Sempra
We provide additional discussion of share-based compensation in Note 14 of the Notes to Consolidated Financial Statements.
Read top to bottom, the owner's questions in the order an owner asks them: what the business is, whether the record holds, whether it survives and is any good, and what you would be paying. New to the questions? Start with the Method.
The business in brief
read the 10-K →What this business is and what moves its needle, read from the numbers in its filings. The quantitative detail is in the sections below; the verdict is left to you.
- What it is
- A capital-intensive business, run on heavy physical assets that have to be kept working.
- Situation
- Capital build-out. capital spending has surged to 85% of sales, today's earnings are charged less depreciation than tomorrow's will be.
- What moves the needle
- How hard the assets work, and what the inputs cost. What decides it: utilization, how much of the capex merely keeps the assets running, and what a downturn does to a heavy fixed-cost base.
- Is it a good business?
- Return on capital has rarely cleared the cost of capital (median 6%, above 15% in 0 of 10 years). Owner earnings, the cash-based check, have been thin too. This is price-taker territory, where the balance sheet and the cycle matter more than any multiple; the 10-K is where you look.
Every line here is arithmetic from the company's own filings, not a model's opinion, and each figure appears in full in the sections below.
The record, 2016–2025
realized figures from each filing, no estimates| 2016’16 | 2017’17 | 2018’18 | 2019’19 | 2020’20 | 2021’21 | 2022’22 | 2023’23 | 2024’24 | 2025’25 | TTMTTMMar 2026 | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| RevenueRevenue | $10.2B | $9.6B | $9.4B | $10.1B | $10.3B | $11.7B | $13.7B | $14.8B | $11.8B | $12.4B | $12.2B |
| Operating marginOp. mgn | 22.7% | 18.8% | 18.6% | 34.0% | 49.4% | 22.4% | 27.3% | 32.8% | 34.9% | 32.8% | 34.1% |
| Net incomeNet inc. | $1.4B | $256M | $924M | $2.1B | $3.8B | $1.3B | $2.1B | $3.1B | $2.9B | $1.8B | $2.0B |
| EPS (diluted)EPS | $2.55 | $0.47 | $1.60 | $3.40 | $6.01 | $2.11 | $3.38 | $4.86 | $4.49 | $2.81 | $2.99 |
| Owner earningsOwner earn. | ($1.9B) | ($80M) | ($28M) | ($620M) | ($2.1B) | ($1.2B) | ($4.2B) | ($2.2B) | ($3.3B) | ($6.0B) | ($5.8B) |
| ROICROIC | 7% | 3% | 5% | 7% | 11% | 5% | 6% | 7% | 6% | 5% | 5% |
| CapexCapex | $4.2B | $3.7B | $3.5B | $3.7B | $4.7B | $5.0B | $5.4B | $8.4B | $8.2B | $10.6B | $10.7B |
| Capex / revenueCapex/rev | 41.4% | 38.4% | 37.5% | 36.6% | 45.4% | 43.0% | 39.0% | 56.6% | 69.5% | 85.5% | 88.3% |
| Capex vs depreciationCapex/dep | 3.21× | 2.58× | 2.38× | 2.36× | 2.81× | 2.70× | 2.65× | 3.77× | 3.37× | 4.14× | 4.22× |
| Total debtDebt | $14.4B | $16.4B | $20.9B | $20.8B | $21.8B | $21.1B | $24.5B | $27.8B | $31.6B | $29.0B | $30.8B |
| Cash & investmentsCash+inv | $349M | $288M | $102M | $108M | $960M | $559M | $370M | $236M | $1.6B | $29M | $794M |
| Net debt / (cash)Net debt | $14.1B | $16.2B | $20.8B | $20.7B | $20.8B | $20.5B | $24.2B | $27.5B | $30.0B | $28.9B | $30.1B |
Owner’s Scorecard
Will it survive?
- AdequateOperating income $4.1B ÷ interest expense $1.5B
Comfortable in a normal year, but below the margin of safety Graham looked for. Worth checking how stable the coverage has been across a full cycle.
- HighTotal debt $29.0B ÷ operating income $4.1B
Years of operating profit it would take to repay all debt. A first read, not a credit rating: it's gross debt (not netted against cash) over EBIT (not EBITDA), and a cyclical year distorts it.
- Debt, net of cash $28.9BHeavy net debtCash $29M − debt $29.0B
Netting $29M of cash and short-term investments against $29.0B of debt leaves $28.9B owed, about 7.1× a year's operating profit, versus the gross figure above. Net debt is the leverage figure that matters; the gross ratio above ignores the cash already set against it. Strategic or illiquid investments aren't counted here.
- Not enough data
The filing data didn't include the inputs for this check.
Is it a good business?
- Below averageNOPAT $2.9B ÷ invested capital $60.5B (debt + equity − cash)
The rate the business earns on the money tied up in it, Buffett's north star, because over time a stock tracks the ROIC beneath it. Above ~15% sustained hints at a moat; below ~8% the company may destroy value as it grows. Asset-light businesses (R&D expensed, little capital) read artificially high, pair this with Owner Earnings.
- Consumes cashOwner Earnings ($6.0B) = operating cash $4.6B − capex $10.6B
What an owner could take out without starving the business. That's -49% of revenue. Treating stock comp as the real expense it is (less $64M of SBC) leaves ($6.1B). Honest caveat: capex here blends maintenance and growth, so steady-state Owner Earnings may run higher (see capex vs. depreciation).
- Cash-backedCash from ops $4.6B ÷ net income $1.8B
How much of reported profit showed up as operating cash. Above 1× is reassuring; well below suggests earnings lean on accruals. One year is noisy, growth and working-capital swings distort it, and this is operating cash, not free cash. Watch the multi-year trend.
How is the cash used?
- No surplus to allocate
The business didn't generate positive Owner Earnings this year, so any distributions came from the balance sheet or borrowing, not from operations.
- Investing or harvesting? 4.14×ExpandingCapex $10.6B ÷ depreciation $2.6B
Descriptive, not a grade. Above ~1× means investing faster than assets wear out (growth, or, sustained for years, today's earnings carrying less depreciation than tomorrow's will). Below means spending less than it's wearing out (efficiency, or a melting asset base). The ratio won't tell you which; the filings will.
Durability & moat, 2016–2025
A moat is a high return that doesn’t fade, reinvested at high returns. Here is what the record says, judgments, not another chart of the numbers.
- Profitable years 10 of 10
Never lost money over the record, the earnings stability Graham insisted on.
- Return on capital ≥ 15% 0 of 10 yrs
A moat shows up as a high return on invested capital that holds year after year, not one good vintage.
- Operating margin 23% (FY2016) → 33% (FY2025)
Margins widened over the record, pricing power intact or improving.
- Reinvestment, incremental ROIC 8%
Reinvested capital earned only a modest return, growth is getting expensive.
- Worst year 2018 · 18.6% op. margin
Stayed profitable even in its hardest year, the resilience that survives recessions.
- Dividend record rising
Paid and raised the dividend across the record, the continuity Graham prized.
Solvent is not the same as cheap; growing is not the same as good. These are vital signs, not a verdict, the judgment is yours, and the filing is one click away.
How the cash was used, 2016–2025
Over the record, the business generated $35.8B of operating cash, and how management split it is, as Buffett insists, the job that matters most. Here it reads as a reinvestor, most operating cash is plowed back into the business.
- Reinvested$57.4B · 160%
- Dividends$11.8B · 33%
- Buybacks$1.6B · 5%
It reinvested $57.4B (160%) back into the business and returned $13.5B (38%) to owners, $11.8B in dividends, $1.6B in buybacks. Total debt rose $16.4B across the span. It returned and reinvested more than it generated, the gap was covered by debt or existing cash.
Buybacks are gross of stock issued to employees; net of that, the real return to owners is lower (see Management & pay). And the mix alone doesn't grade management, what matters is the return earned on the dollars reinvested (see incremental ROIC in the durability report).
Management & pay
Two questions Buffett actually asks about pay: is stock compensation, a real expense, whatever the income statement pretends, quietly large, and is the top wildly out of line with the floor. He's no populist about it; he just wants pay that's rational and earned, and comp committees that aren't lapdogs.
- Stock-based compensation$64M
The slice of the business handed to employees in shares this year, 1% of revenue, equal to 2% of operating profit. Buffett's oldest accounting fight: this is compensation, compensation is an expense, real whether or not the headline earnings admit it. And note the trap, the cash-flow statement adds SBC back, so the operating cash, and the owner earnings drawn from it, are flattered by exactly this amount; counted as the cost it is, what an owner keeps is lower.
Graham’s defensive-investor test
4 of 6 metGraham gave the defensive investor seven numerical criteria in The Intelligent Investor. Here they are, run mechanically on the filings, his framework, not our verdict. Meeting them is a floor of safety, not a reason to buy; missing one is no veto, since many fine modern businesses fail his strictest liquidity tests by design. The worth is in seeing exactly where a company stands against the canon, every number sourced.
- Adequate size PassRevenue ≥ $2B · $12.4B
Big enough to weather a storm. Graham's 1972 floor was ~$100M of sales (≈ $700M today); we use a $2B revenue line as a conservative modern stand-in.
- Strong liquidity NearCurrent ratio ≥ 2× · 1.59×
Current assets at least twice current liabilities, near-term bills covered without touching the business. Strict by design: many cash-rich modern firms run leaner and miss it, holding their cushion in longer-dated securities.
- Conservative debt MissDebt ≤ working capital · $29.0B vs $12.9B WC
Graham's rule that borrowings not exceed net current assets. Capital-heavy and buyback-heavy firms routinely fail it, read it next to interest coverage, not alone.
- Earnings stability PassA profit every year (10-yr record) · no losses
Graham wanted earnings in each of the past ten years, the stability a defensive owner leans on.
- Dividend record PassUninterrupted dividends · paid every year (10)
An unbroken dividend was Graham's mark of durability. He wanted twenty years; the filings show about ten, and a single suspension breaks the streak. Non-payers, many fine modern compounders, fall outside his defensive net by design.
- Earnings growth PassEarnings +33% over the record · +205%
At least a third more earnings than a decade ago, averaging three years at each end. Net income (not per-share), so stock splits don't distort it, buybacks and dilution show up in the share-count line instead.
- Moderate price —P/E ≤ 15 and P/E × P/B ≤ 22.5 · decided by the price
Graham's valuation gate, the wall he kept between a sound business and a sound investment. Earnings are $2.81/share and book value $48.32/share. Enter a price in “What the price implies” just below for the P/E, P/B, and whether it clears. But this is the rule Buffett outgrew: there's no hard P/E law, and a wonderful business can deserve a far richer multiple if the thesis holds, treat it as the bargain-hunter's floor, not a verdict on the price.
Graham would be the first to say a checklist is a starting point, not an answer. These are his defensive, bargain-hunter's tests, the cigar-butt lens. Buffett and Munger grew past it, paying fair prices for wonderful businesses; that lens lives in the moat and owner-earnings work above, and both still matter. Clearing Graham’s tests earns a closer look; failing them earns harder questions, not a dismissal.
What the price implies
reverse-DCFOwner earnings are negative today, so the usual reverse-DCF has nothing to grow. But that's exactly when a price makes its boldest promise. So we flip the question: type a price, and see the future profitability you'd have to believe to justify it.
Enter a price to run it.
It flips the reverse-DCF: the company must reach owner earnings that, valued at a mature multiple and discounted back at your rate, equal today's market cap, shown as the margin it must earn on revenue grown at your rate, from negative today. For a deep cyclical at a trough, normalized through-cycle earnings are the better lens; this is for the genuinely unprofitable.
What the filing emphasizes, FY2025
read the 10-K →Each year a 10-K must name what could go wrong, in the company's own words. Here are the ones Graham and Buffett would stop on, each set against the figure from the same filings that bears on it, anchored to a period you can find in the record above. We point; the judgment is yours.
- Debt terms & refinancingBusiness
The fine print behind the debt. Covenants and near-term maturities decide who is really in control when a year goes badly.
“Sempra is not the primary beneficiary of this VIE because we do not have the power to direct the most significant activities of CFIN, including modification, prepayment, and refinance decisions related to the financing arrangement with external lenders and Cameron LNG JV's four project owners as wel…”
From the recordBalance sheet (TTM)$28.9B heavy net debt · interest covered 2.7× - Litigation & contingenciesBusiness
Claims an owner inherits. Most disclosure is boilerplate; this fires only on an actual matter, a named suit, a settlement, a contingency, a number.
“At December 31, 2025, loss contingency accruals for legal matters that are probable and estimable were $ 38 million for Sempra, including $ 22 million for SoCalGas.”
A judgment, not a number, weigh it against the filing yourself. - DilutionBusiness
Whether your slice quietly shrinks. New shares fund the company at the existing owner's expense.
“Additionally, if we decide to physically settle or net share settle the forward sale agreements, delivery of our shares to the forward purchasers on any such physical settlement or net share settlement of the forward sale agreements would result in dilution to our EPS.”
A judgment, not a number, weigh it against the filing yourself. - Regulation & policyBusiness
Rules that can rewrite the economics, tariffs, antitrust, data, export controls.
“In connection with SDG&E's election to change its tax accounting method for gas repairs expenditures, the 2024 combined revenue requirement increase is net of $ 68 million of income tax benefits for 2023 and 2024 to be flowed through to customers.”
A judgment, not a number, weigh it against the filing yourself.
What changed, FY2025 vs FY2024
read the 10-K →Most of a 10-K is boilerplate carried over verbatim; the signal is in what's new. These lines appear this year and weren't there last, figure updates filtered out, so only the language shift remains.
- “In connection with the Track 2 FD, in the fourth quarter of 2025, SDG&E recorded a charge of $651 million ($464 million after tax) in Regulatory Disallowances on the SDG&E and Sempra Consolidated Statements of Operations, of which $605 million ($432 million after tax) relates to 2019 through 2024, $…”
- “As a result, a fire resulting from the conduct or operations of any participating California electric IOU could have a material adverse effect on Sempra's and SDG&E's results of operations, financial condition, cash flows and/or prospects, with potentially material additional exposure if SDG&E's con…”
- “We expect this sale to close in the second or third quarter of 2026, subject to certain conditions, including receipt of antitrust approvals in Mexico; receipt of other third-party consents or waivers, including from certain lenders, partners and others; the absence of a material adverse effect on S…”
- “Since the June 2025 effective date of the bill, Oncor has recognized revenues and corresponding regulatory assets for recoverable costs related to UTM-eligible transmission and distribution capital investments that were placed into service from January 1, 2025 through December 31, 2025, including de…”
- “In connection with the Track 2 FD, in the fourth quarter of 2025, SDG&E recorded a charge of $651 million ($464 million after tax) in Regulatory Disallowances on the SDG&E and Sempra Consolidated Statements of Operations, of which $605 million ($432 million after tax) relates to 2019 through 2024, $…”
Classic text analysis over the filing itself, no model wrote a word of this, and every quote is the company's own.
Peers, Utilities
The same industry, side by side on owner economics, compare, don't rank by a single number.● marks best in the group.
| Company | Revenue | Gross margin | Op. margin | ROIC | Owner earn. margin |
|---|---|---|---|---|---|
| EDConsolidated Edison Inc | $17.0B | — | 17.2% | 5% | 2% |
| SRESempra | $12.4B | — | 32.8% | 5% | -49% |
| PEGPublic Service Enterprise Group Inc | $12.2B | 75% | 24.5% | 7% | 0% |
| XELXcel Energy Inc | $11.5B | 67% | 22.4% | 5% | -59% |
| WECWEC Energy Group, Inc. | $9.8B | 67% | 22.9% | 6% | 7% |
| AEEAmeren Corp | $8.8B | — | 23.0% | 6% | -9% |
| CMSCMS Energy Corp | $8.3B | — | 20.8% | 5% | -2% |
| NINisource Inc. | $6.5B | 76% | 28.1% | 6% | -6% |