Analysts cut EDP, EDPR ratings before CMD, cite limited near-term upside

Investing.com -- Energias de Portugal (EDP) and its renewables unit EDP Renováveis (EDPR) were both downgraded by J.P. Morgan and Deutsche Bank ahead of the companies’ Capital Markets Day on Nov. 6, with analysts citing stretched valuations and the likelihood of conservative management guidance.

J.P. Morgan downgraded EDP to “neutral” from “overweight” and placed both stocks on Negative Catalyst Watch. 

The brokerage said EDP’s 49.7% total return so far in 2025, outperforming the European utilities sector by 22%, left “little upside” to its end-2026 price target of €4.70, raised slightly from €4.60. 

The brokerage said the market may be overestimating the growth EDP will derive from its 71%-owned renewables affiliate EDPR and underestimating management’s focus on balance sheet strength over expansion in the next two years.

J.P. Morgan estimated EDP’s 2028 net income at €1.43 billion compared with consensus of €1.36 billion, but noted management could guide more conservatively to a range between €1.3 billion and €1.4 billion. 

For EDPR, it projected 2028 net income of about €604 million versus consensus of €626 million. The bank said such cautious forecasts could trigger profit-taking in both stocks.

The brokerage described EDP’s short-term valuation as “less attractive,” with the shares trading at roughly 14.5x estimated 2026 earnings, a premium to peers such as Endesa at 13.5x and Enel at 12x. 

It maintained that EDP still offers long-term earnings growth of about 7% annually between 2026 and 2028, but said the next year will likely bring stable results and fewer near-term shareholder return surprises.

Deutsche Bank also moved EDP to “hold” from “buy,” increasing its target price to €4.10 from €3.90. 

Analyst Olly Jeffery said the stock had been the third-best performer in the sector since May, when it was upgraded, but now trades on about a 15% premium to the sector’s 2027 price-to-earnings multiple, compared with a 10% discount previously. Jeffery said this re-rating brings EDP “much closer to full valuation.”

Deutsche Bank expects EDP’s Iberian hydro output in the third quarter to be slightly below normal, though reservoir levels ended the period well above average. 

The bank noted that Hydro, Clients and EM Iberia segments were likely affected by greater use of flexible generation ancillary services, reducing hydro’s contribution.

EDPR was likewise cut to “hold” by both banks. Deutsche Bank trimmed its target to €11-€12, from the last close of €13.32. 

Jeffery said EDPR had been the sector’s best performer since May, driven by an improving U.S. outlook and the end of earnings downgrades, but now trades at about a 25% premium to the net present value of its capital expenditure base, versus a discount earlier this year. Despite its medium-term potential, he called it a “travel and arrive story” ahead of the CMD.

J.P. Morgan echoed the cautious stance, saying EDPR’s strong recent run had erased earlier undervaluation. 

The brokerage noted that EDPR trades at 22.8x projected 2028 earnings, or 33.3x excluding asset rotation gains, and said investors would likely require clearer evidence of execution improvements and stronger non-U.S. pricing before rerating the stock.

Both brokerages expect management at the CMD to emphasize prudent financial discipline, given market volatility, regulatory uncertainty in Iberia, and Brazil’s high interest rates.

J.P. Morgan said it anticipates EDP’s guidance will focus on stability and leverage control rather than aggressive growth or higher dividends.