Enagas stock upgraded after Q3 underperformance, but caution remains - BofA

On Wednesday, BofA Securities adjusted its stance on Enagas SA (ENG:SM) (OTC: ENGGY) stock shifting the rating from Underperform to Neutral and increasing the price target to EUR14.80, up from the previous EUR14.10.

The revision follows a period in which Enagas shares lagged behind its Spanish counterpart, Red Electrica, and the broader sector index by approximately 9% and 12.5% respectively during the third quarter.

The analyst cited several factors for the change in rating. A key point was the recent disposal of a EUR1.1 billion stake in Tallgrass Energy, which is anticipated to contribute positively to earnings. Additionally, an expected supportive regulatory review is believed to bolster the company's financial outlook.

However, the analyst's outlook remains cautiously optimistic due to the potential impact of an uncertain arbitration verdict and reservations about the company's infrastructure plans for the second half of the year.

In light of these developments, BofA Securities has updated its estimates for Enagas, which in turn has led to a revised sum-of-the-parts (SOTP)-based price objective of EUR14.80 per share.

This new target suggests a potential upside of 7% from the stock's current level. The report provided by the analyst elaborates on the rationale behind the changes in estimates and the price target.

Enagas, which operates in the energy sector focusing on natural gas transmission and storage, has faced a challenging quarter in comparison to its peers.

The company's strategic moves, including the disposal of assets and anticipation of favorable regulatory conditions, are key elements that influenced BofA Securities' reassessment of the stock's potential. Despite the upgrade, the firm maintains a degree of caution due to unresolved factors that could affect Enagas' performance in the near term.

InvestingPro Insights

To complement BofA Securities' analysis of Enagas SA (OTC: ENGGY), InvestingPro data offers additional context to the company's financial position and market performance. As of the latest available data, Enagas boasts a market capitalization of $4.01 billion, with a price-to-earnings (P/E) ratio of 15.31 based on the last twelve months as of Q2 2024. This P/E ratio suggests a more favorable valuation compared to the negative P/E of -39.27 reported earlier, aligning with the analyst's more optimistic outlook.

InvestingPro Tips highlight Enagas' strong dividend profile, which is particularly relevant given the company's recent strategic moves. The company has raised its dividend for 13 consecutive years and currently offers a significant dividend yield of 10.66%. This consistent dividend growth, coupled with a 20.23% dividend growth rate in the last twelve months, underscores Enagas' commitment to shareholder returns despite recent challenges.

Moreover, Enagas demonstrates impressive gross profit margins, with the latest data showing a 93.27% gross profit margin for the last twelve months as of Q2 2024. This robust profitability metric supports the company's ability to maintain its dividend payments and potentially benefit from the expected supportive regulatory review mentioned in the BofA Securities report.

For investors seeking a more comprehensive analysis, InvestingPro offers 8 additional tips that could provide deeper insights into Enagas' financial health and future prospects.

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