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Investing.com -- Jefferies has upgraded its rating on renewable energy company EDP Renováveis (EDPR) to “buy” from “hold,” citing significant upside potential driven by U.S. power demand growth.
Shares of the Spanish company were up 3.3% at 07:42 ET (12:42 GMT).
The brokerage identifies EDPR as the most exposed among European utilities to rising U.S. power prices and sees this as a key driver for earnings revisions in the coming years.
Jefferies estimates EDPR’s earnings per share (EPS) will grow at a compound annual growth rate (CAGR) of 28% from 2025 to 2028, compared to a negative CAGR of 23% in the prior period.
The brokerage forecasts that 50-60% of EDPR’s EPS will come from the U.S. over this period. Jefferies expects around 8 terawatt-hours of existing U.S. generation capacity to be exposed to repricing through 2030.
Even modest price increases could add significantly to EDPR’s earnings. For example, a $5/MWh increase in U.S. power prices could boost EDPR’s net income by around 5% by 2030.
This would be supported by trends of higher power purchase agreement (PPA) prices in the U.S., which are likely to set a premium for new assets as well.
The Jefferies note points to a “compelling narrative shift” for EDPR. After years of downward earnings revisions, the firm now sees a sustained growth trajectory driven by stronger U.S. fundamentals, improved efficiency, and asset rotation gains.
Clarity on U.S. renewables development from recent Treasury guidance and the Inflation Reduction Act has also eased earlier concerns about EDPR’s U.S. growth and balance sheet.
Jefferies also flags a near-term catalyst in EDPR’s upcoming Capital Markets Day on November 6th.
They expect management to outline a stronger earnings profile through at least 2028, with emphasis on offtake pricing improvements and operational efficiency.
The brokerage anticipates that management will focus on delivering returns rather than simply expanding volumes, and that this will support further upward revisions to earnings expectations.
Following its analysis, Jefferies has raised its price target for EDPR to €15.6 per share, implying a potential upside of 59% from current levels.
The new valuation reflects improved operational asset value and higher expected earnings, with Jefferies noting that EDPR remains well below its September 2024 levels despite a recent rally of around 24%.
They describe EDPR as offering a defensive profile, with about 70% of earnings contracted and strong exposure to U.S. power fundamentals.
Jefferies maintains its “hold” rating on EDP, the parent company, but raises its price target to €4.55, driven by the higher valuation of EDPR.
They note that while EDPR offers a clear growth story, EDP’s longer-term EPS outlook remains more conservative, with less scope for significant inflection.