National Grid stock rating cut to neutral by UBS

On Tuesday, UBS analysts downgraded National Grid (LON:NG) shares from Buy to Neutral, adjusting the price target slightly to GBP11.50 from GBP11.60. The shift in rating reflects UBS’s view that the stock currently offers limited upside potential, with shares trading near their 52-week high of $74.82. Analysts at the firm have indicated that the anticipated positive outcomes of the RIIO-T3 draft determination, as well as the increase in US nominal Return on Equity (ROE) to approximately 9.5% and above, are already factored into the stock’s price. According to InvestingPro data, the stock is trading at a high earnings multiple with a P/E ratio of 25.33, suggesting elevated valuations.

The downgrade comes with a modest reduction in the price target for National Grid, now set at 1,150 pence, down from the previous target of 1,160 pence. This change is attributed to minor updates, including revisions to the forecasts for returns and inflation rates. Despite the downgrade, National Grid maintains strong fundamentals with a GOOD financial health score and has demonstrated impressive shareholder returns, including a 22.6% year-to-date price appreciation.

In contrast to the neutral stance on National Grid, UBS analysts maintain a positive outlook on SSE (LON:SSE), another utility company, with a Buy rating and a price target of 1,970 pence. The preference for SSE over National Grid is based on a combination of more attractive catalysts for growth and a lower valuation, suggesting a better investment opportunity according to UBS’s analysis. National Grid, with its $69.75 billion market capitalization, maintains a strong dividend profile, offering a 2.77% yield and a 29-year track record of consecutive dividend payments. For deeper insights into National Grid’s valuation metrics and growth potential, InvestingPro subscribers have access to over 30 additional financial metrics and analysis tools.

The UBS commentary highlights a strategic shift in their recommendations within the utilities sector, pointing investors towards opportunities where they perceive a greater potential for returns. National Grid’s recent performance and market expectations have led to the reassessment of its investment profile by UBS.

Investors and market watchers will likely monitor National Grid’s stock performance following this updated analyst perspective, as well as any forthcoming developments that could influence the company’s valuation and the utilities sector at large.

In other recent news, Bernstein analysts have upgraded National Grid’s stock rating to Outperform. This change was led by Deepa Venkateswaran, who also increased the price target from GBP10.40 to GBP11.20. The analysts believe that National Grid’s valuation has not kept pace with its US counterparts, despite having significant assets in the US. Bernstein’s analysis highlights that the US segment of National Grid should not be trading at a discount due to its growth prospects and clear visibility. Additionally, the UK operations are considered attractive, with substantial growth potential and a favorable regulatory environment. The new price target of 1,120 pence suggests a 17% potential upside, indicating Bernstein’s confidence in the company’s valuation and performance. These recent developments reflect Bernstein’s positive outlook on National Grid’s combined US and UK business operations.

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