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Goldman Sachs Upgrades Iberdrola to 'Buy' on Grid Investment and Earnings Outlook
Summary
Goldman Sachs raised its rating on the Spanish utility to 'Buy' from 'Neutral,' citing a robust earnings growth forecast driven by an anticipated €100 billion investment in power grids through 2031.
Goldman Sachs has upgraded Spanish utility Iberdrola to "Buy" from "Neutral," forecasting a period of stronger earnings growth and dividend returns driven by a significant ramp-up in grid investments, particularly in the United States and Britain.
The Analyst View
In a research note, Goldman Sachs raised its price target on Iberdrola to €25 from €21, which implies a 21.3% potential upside from the stock's closing price of €20.61 on September 30. The bank projects that Iberdrola's earnings will grow at a compound annual rate of approximately 10% between 2026 and 2031.
This move follows a similar upgrade from Deutsche Bank on September 29, which also raised Iberdrola to "Buy" from "Hold" and increased its price target to €22. Deutsche Bank cited stronger earnings expectations and potential upside from the company's next strategic plan, expected in 2027.
A Focus on Grid Investment
Goldman's positive outlook is underpinned by an expected increase in capital expenditure. The bank anticipates Iberdrola will announce an extended investment plan of about €100 billion for the 2026-2031 period at its Capital Markets Day in April 2027, a notable increase from a previous estimate of €85 billion.
Key details of the anticipated spending include:
Ad- Around 70% of the capital is expected to be allocated to regulated power networks.
- The primary geographic focus will be the U.S. and the U.K.
- Investments will also target the repowering of wind farms in the United States.
Based on this outlook, Goldman raised its 2029-2031 earnings-per-share forecasts for Iberdrola by about 20%, projecting a net profit of €10.2 billion in 2030 and €10.9 billion in 2031.
Potential Risks and Financials
Despite the bullish forecast, Goldman Sachs acknowledged several financial risks. The extensive investment program and dividend payments are expected to result in negative cash flow for the company through 2031. This could also cause net debt relative to earnings to rise to approximately four times by the end of the plan.
Other potential headwinds flagged by the bank include weaker power prices, adverse regulatory changes in Spain and the U.K., and currency fluctuations. With about two-thirds of its EBITDA generated outside of Spain and the European Union, Iberdrola has significant exposure to the U.S. dollar, British pound, and Brazilian real.
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