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Investing.com -- Goldman Sachs has downgraded Endesa SA (BME:ELE) to “sell” from “neutral,” citing the likely end of a favorable earnings revision cycle and limited upside potential.
Shares of the electric utility company were down 3.7% 07:30 ET (11:30 GMT).
The brokerage raised its 12-month price target to €26 from €23.50, implying a 2% downside risk.
Endesa has delivered strong results supported by resilient electricity margins and investor-friendly policies, including a roughly 5.5% dividend yield and a €2 billion share buyback program.
However, Goldman said much of the good news is already priced in, and earnings momentum appears to be slowing.
Analysts expect 2026 to mark the company’s earnings peak, as normalizing power prices and softening retail margins weigh on profits.
The brokerage forecasts Spanish power prices will decline to about €55/MWh, driven by lower gas prices and growing renewable output.
Given Endesa’s high exposure to fixed-cost generation, every €10/MWh drop could reduce earnings by €300 million, according to the report.
To maintain earnings above €2 beyond 2026, Endesa would likely need to fully leverage its balance sheet, either through extending the share buyback or selective acquisitions.
But this would raise its net debt/EBITDA ratio to around 3.1 times, limiting future financial flexibility.
Shares currently trade at around 13 times expected 2026–27 earnings, in line with long-term sector averages.
Goldman’s valuation assumes relatively supportive regulatory and market conditions, including 7.25% allowed returns in distribution, doubled grid capex, and moderate retail margin contraction.
Goldman noted that the recent Spanish blackout could drive policy changes favoring grid investment and backup generation.
While potentially beneficial for Endesa, analysts said the current stock price already reflects optimistic expectations.
Despite raising its EBITDA and EPS forecasts by about 3% and 7% respectively after first-quarter results, Goldman expects earnings to flatten from 2026 and gradually decline.
The company is also projected to remain free cash flow negative after dividends through 2029.