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Investing.com -- Citi Research has downgraded two major European utilities, Enel (BIT:ENEI) SpA and Endesa (BME:ELE) SA, citing limited upside in the current market environment.Enel has been cut to “neutral,” while Endesa is now rated “sell.”
The downgrade on Enel follows a recent rally that brought shares to Citi’s 12-month price target of €7.4.
Analysts say the stock now fairly reflects expectations for normalized power prices and retail margins over the next three years.
While Enel’s relatively low valuation versus peers and its net long retail position provide some earnings stability in the short term, Citi warns that falling commodity prices will likely reduce inframarginal profits and intensify retail competition, putting pressure on margins.
The brokerage still sees Enel as a solid operator but no longer sees a compelling valuation case at current levels.
Citi's downgrade of Endesa to “sell” indicates more profound worries. They believe the recent stock price surge, fueled by the €500 million buyback, possible network and non-mainland generation investments, and defensive macro trends, has already accounted for all growth prospects.
Consequently, Citi sees a downside risk to their existing €20.3 price target, as the market is not adequately considering the potential for earnings to normalize downwards.
Citi expects Endesa’s earnings — currently bolstered by elevated commodity prices and retail margins — to come under pressure as market conditions return to pre-war norms.
The company’s integrated EBITDA is currently running around 50% above pre-Ukraine war levels.
Citi believes this is unsustainable and sees additional pressure from a potential global recession and trade-related tensions, which could accelerate the decline in commodity prices.
As prices fall, retail churn — already above 20% — is expected to trigger more price-focused competition, squeezing margins further.
While the share buyback and increased investments in networks and non-mainland assets are positive steps, Citi says they are not sufficient to offset broader earnings risks.
Even with a forecasted 12% EPS uplift for FY25–27, helped by acquisitions and lower share count from the buyback, analysts remain unconvinced the company can meet its FY27 EBITDA targets.