On Thursday, UBS maintained its Buy rating on Iberdrola SA (IBE:SM) (OTC: OTC:IBDRY) stock and increased its price target to EUR15.30, up from the previous EUR13.25. This adjustment reflects an updated financial model that incorporates the latest macroeconomic factors and foreign exchange rates, as well as the company's potential earnings growth.
The revised model by UBS predicts that Iberdrola will achieve a 10% compound annual growth rate (CAGR) in earnings per share (EPS) from 2023 to 2026.
The firm's positive outlook on the stock is also based on an over 15% implied total return to the new price target, which takes into account a lower weighted average cost of capital (WACC) and higher earnings in the generation and supply sectors.
UBS's stance on Iberdrola is bolstered by several factors, including the company's superior EPS growth, consistent guidance upgrades, and an attractive dividend yield. Additionally, the firm recognizes the value in Iberdrola's regulated and contracted activities, as well as its diversified portfolio, which has demonstrated reliable performance.
The stock has seen a 13% increase, outperforming the sector's 8% rise, which UBS attributes primarily to a decrease in yields. This growth follows the announcement on August 7, 2023, of Iberdrola's acquisition of Energy Network Solutions (ENW), which has been factored into the financial model updates.
UBS concludes that a premium valuation for Iberdrola is justified given the company's robust growth prospects, strategic business operations, and consistent delivery on its financial objectives. The firm's analysis underlines its confidence in Iberdrola's future performance and market position.
In other recent news, Iberdrola SA has been the focus of analysis from two financial firms, CFRA and Citi. Despite a 14% decline in first-half 2024 revenue to EUR22.6 billion, Iberdrola's EBITDA saw a 9% increase to EUR7.9 billion, according to CFRA.
The firm attributes this growth to record renewable energy production, particularly from offshore wind projects and contributions from the Iberian peninsula. CFRA also noted Iberdrola's increased investment in renewable energy, with gross investments rising 16% year-over-year to EUR5.3 billion.
The firm anticipates Iberdrola's margins to benefit from economies of scale resulting from additional renewable capacity and improved rates in Brazil, the U.S., and the U.K. Meanwhile, Citi has maintained a Sell rating on Iberdrola's shares, despite raising the share price target from €9.50 to €9.60.
The firm expressed concerns over operational challenges in the United States and the company's below-average operational Return on Regulated Equity (RoRE) in the United Kingdom. These recent developments highlight the differing perspectives of financial firms on Iberdrola's performance and future prospects.
InvestingPro Insights
Complementing the outlook from UBS, InvestingPro data and tips provide further insights into Iberdrola's financial health and stock performance. With a market capitalization of $94.42 billion and a P/E ratio standing at a competitive 13.81, Iberdrola showcases a strong presence in the market. Notably, the company has a robust gross profit margin of 51.78% over the last twelve months as of Q2 2024, indicating efficient operations and a solid grasp on cost management.
InvestingPro Tips highlight that Iberdrola is a prominent player in the Electric Utilities industry and has been committed to rewarding its shareholders, raising its dividend for 9 consecutive years. Moreover, the stock is known for low price volatility, providing investors with a stable investment option. These attributes align with UBS’s positive outlook and further justify the premium valuation for Iberdrola. For more detailed analysis and additional InvestingPro Tips, investors can visit https://www.investing.com/pro/IBDRY, where 11 more tips are available, offering a comprehensive view of the company's prospects.
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