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Investing.com -- Jefferies has downgraded EDP Renovaveis (ELI:EDPR) to "hold" and lowered its price target to €8.70 per share, citing concerns over the company’s strained balance sheet and execution risks associated with its asset rotation strategy.
The revised target reflects a 13% total shareholder return, down from the previous valuation of €11 per share.
According to analysts at Jefferies, EDPR’s ability to reduce its debt hinges on a planned €3 billion asset rotation process, which involves selling renewable energy assets post-construction.
However, a major portion of these disposals is expected to take place in the U.S., where regulatory and political uncertainty surrounding renewable energy remains high.
This uncertainty raises the risk that EDPR may struggle to execute its sales at favorable terms, potentially limiting its ability to generate the anticipated capital gains.
Jefferies noted that EDPR is adjusting its growth strategy in response to financial constraints. The company now plans to add 3.5 gigawatts (GW) of capacity between 2025 and 2026, a sharp reduction from its earlier guidance of 6 GW.
Despite this scale-back, leverage remains a concern, with Jefferies forecasting a Net Debt to EBITDA ratio of 4x in 2025, with only a gradual decline expected in 2026.
The brokerage also pointed out that EDPR’s long-standing asset rotation model, which has historically allowed the company to build assets at a lower cost of capital and sell them at a higher return, is becoming less effective due to rising capital expenditures.
As a result, the company is expected to build and sell fewer assets, potentially at lower multiples, which could impact capital gains.
Jefferies has revised its capital gains forecast for 2025-26 from €422 million to €269 million, with estimated gains per megawatt declining from €0.17 million in 2024 to around €0.10 million in the following years.
Despite the recent decline in EDPR’s share price, Jefferies analysts questioned whether investors should continue paying a valuation multiple of around 22 times the company’s expected 2025 earnings.
They estimate EDPR’s earnings per share compound annual growth rate at approximately 9% from 2025 to 2030, coupled with a modest 1% dividend yield.
While this implies a total equity return of around 10%, integrated utilities—trading at lower multiples of roughly 12 times earnings—offer comparable returns of 8-9%, making them a potentially more attractive investment.
Jefferies also revised its long-term outlook for EDPR, reducing projected capacity additions beyond 2027 by 38% to 1.3 GW per year.
The analysts cited uncertainty over the company’s growth strategy in the U.S. and challenges in other key markets, including Brazil and Spain, where oversupply could hinder expansion efforts.
The brokerage also cut its EBITDA forecast for 2025-2027 by an average of 8%, primarily due to reduced capital gains from asset sales.
The updated model lowers expected capital gains for 2025 from €168 million to €115 million, and for 2026 from €254 million to €126 million, reflecting the higher costs and weaker valuation environment for U.S. projects.