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Investing.com -- RBC Capital Markets downgraded Enel and Endesa to “underperform” from “sector perform,” saying expectations for both companies have become too optimistic as regulatory pressure, margin risks and stretched valuations weigh on the outlook, in a note dated Wednesday.
Shares of Enel and Endesa were down 1.8% and 2.7% respectively at 05:07 ET (10:07 GMT).
The analysts said Enel faces significant uncertainty in Italy and Brazil. Italy plans to extend electricity distribution concessions beyond 2030, but the regulator Arera has argued for a shorter 10-year renewal instead of the government’s initial 20-year plan.
The brokerage said this would likely limit the one-off fee added to Enel’s regulatory asset base, estimating an increase of about €2.6 billion under a 10-year extension rather than the roughly €3.8 billion implied by a 20-year period.
Hydro conditions in Italy remain weak, with reservoir levels standing about 22% below the 10-year average.
In Brazil, Enel continues to face political and regulatory scrutiny in São Paulo following blackouts and service-quality disputes.
A federal judge ordered a halt to the renewal of Enel São Paulo’s concession after local authorities questioned whether an early renewal serves the public interest.
The company is appealing and has committed BRL 10.4 billion in investments for 2025-27, but the process has grown more uncertain as the governor publicly called for action against Enel after repeated outages, including a September blackout that left 1.8 million people without power for up to four days and resulted in BRL 300 million in fines. Brazil provides roughly 6% of Enel’s total EBITDA.
The brokerage said Endesa’s margins remain at levels that are unlikely to persist. The company reported integrated electricity margins above €50/MWh in eight of the past 11 quarters, compared with a little over €30/MWh from 2019 to 2022.
Supply margins reached €20/MWh in the second quarter of 2025 and €18/MWh in the third quarter despite blackout-related ancillary costs.
Excluding those costs, margins would have averaged about €23/MWh, more than double pre-Ukraine norms, which typically fell below €10/MWh.
Analysts expect margins to begin normalizing in 2026. Gas margins also stayed elevated at about €9-11/MWh through the first three quarters of 2025, versus an average near €3/MWh before the invasion of Ukraine, representing roughly €0.4 billion in gross margin risk if they decline.
RBC said both companies now screen as expensive. Enel’s “stub” business, excluding listed subsidiaries, trades at about a 10% P/E discount to the sector, far narrower than its five-year average discount of about 30%.
The brokerage added that Enel’s share buyback program has not resumed since the stock traded above €8. Endesa’s valuation also stands above its closest peer, Iberdrola, with a 2026 estimated P/E of 17.4x compared with Iberdrola’s 17.1x.
The analysts said Endesa’s share buyback activity has paused since Oct. 29, coinciding with the stock rising above €30. The company had completed about 16% of the €500 million third tranche by that point.
The brokerage set new price targets of €8 for Enel, up slightly from €7.80, and €25.50 for Endesa, down from €26.50.