J.P. Morgan cuts Endesa to “neutral,” citing limited upside after sharp rally
Investing.com -- J.P. Morgan cut its rating on Endesa (BME:ELE) to “neutral” from “overweight,” saying the stock’s strong performance has left limited room for further gains in a note dated Monday.
The brokerage said Endesa has delivered a 63% total return this year and outperformed the European utilities sector by 30%, leaving the shares fully valued even under optimistic projections.
J.P. Morgan said the company’s dividend profile remains attractive, but noted that Endesa already trades at a 6% 2028 dividend yield based on its expectation of a 90% payout ratio.
The brokerage said that level offers little scope for upside. It also said earnings are set to stabilise as gas wholesale results normalise, forecasting broadly flat 2028 net income compared with 2025.
A planned €2 billion buyback is expected to lift EPS by an annual 1.3% between 2025 and 2028. Endesa trades at 15.4 times 2025 earnings and 14.9 times 2028 earnings, which J.P. Morgan said it incorporates long-term demand growth in Spain.
The bank made small changes to near-term estimates after what it described as solid third-quarter results.
It raised 2025 EBITDA and EPS by 1% and 2% following stronger-than-expected gas volumes and stable supply margins.
Its 2026 estimates were little changed, with higher integrated margins offset by lower network profits and a slightly higher share count. J.P. Morgan also lowered financial expense forecasts after a decline in Endesa’s average funding cost to 3.3%.
The brokerage raised its price target to €32.50 from €27.50 as it shifted its valuation horizon to the end of 2027 and adopted more positive assumptions for long-term prices and margins.
It now expects Endesa’s power sales to rise 5.3% between 2025 and 2028, driven by stronger electricity demand in Spain, and projects wholesale prices above €60 per megawatt-hour and supply margins near €20 per megawatt-hour.
J.P. Morgan said delays in Spain’s regulatory framework, particularly in network connections and remuneration rules, could hold back potential demand upside until later in the decade.
It said Endesa’s spending on growth projects is likely to remain limited by permitting challenges in renewables and restrictions in network investment, supporting stable medium-term earnings.
The brokerage said Endesa’s strong cash flow and low leverage support substantial dividends but noted the company may not reach its stated leverage goal of at least 2.5 times net debt to EBITDA during the period.
J.P. Morgan cited risks including potential government intervention in power prices, faster renewable additions that could pressure electricity prices, and increased competition in the power and gas markets.
It said mergers and acquisitions could pose upside or downside depending on execution. Stronger-than-expected Spanish demand growth could also lift margins.
