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Investing.com -- Morgan Stanley downgraded Iberdrola (OTC:IBDRY) to Equal-weight from Overweight in a note Tuesday, lowering its price target for the stock to €14.50 from €15.00 a share.
The bank cited limited near-term upside following strong outperformance over the past year.
The stock has outperformed European Utilities by 17%, but with shares near all-time highs and trading at a 25% premium to historical sector levels, analysts see better risk-reward elsewhere.
"We now see the stock running out of runway for further near-term upside relative to other stocks in our coverage universe," Morgan Stanley (NYSE:MS) wrote, adding that higher bond yields and lower power prices have led to the lowered price target.
The new target suggests just 3% upside, plus a 4.8% dividend yield, implying less than 10% total shareholder return in 2025.
Despite the downgrade, analysts still consider Iberdrola a "core holding" for many investors, highlighting its quality earnings mix, with 65% of its business in electricity networks and renewables, expected to rise to 85% by 2030.
However, the bank warns that sustaining growth could become a challenge as the company moves past its strong Spanish liberalized margin expansion from 2021-2025, leading to a slower expected EPS CAGR of 6% from 2024-2030.
Morgan Stanley also pointed to a potential management transition, noting that Iberdrola’s CFO is set to retire in 2026, which could weigh on the market’s willingness to continue paying a premium for the stock.
While Iberdrola remains best-in-class for capital allocation, the firm now sees other lower-risk growth opportunities in the utilities sector at more attractive valuations.