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Investing.com -- Shares of A2A SpA (BIT:A2) rose more than 6% on Monday after Morgan Stanley upgraded the Italian multi-utility to “overweight” and named it a top pick, raising its price target to €3.25 from €2.55 on what it called an “attractive valuation with potential for added upside from data centre thematic.”
The U.S. investment bank said A2A is trading below the average valuation of its European integrated utility peers, with a projected 2026 price-to-earnings ratio of 11x and EV/EBITDA of 6x, compared with peer averages of 13x and 8.5x.
The brokerage said A2A offers an estimated 12% total shareholder return, combining a dividend yield of more than 4% and a three-year earnings per share CAGR of 7%.
“A2A trades at 11x P/E, 6x EV/EBITDA (2026e), below peer average of 13x, 8.5x respectively. Yet it presents an attractive, above-average TSR of 12%,” the report said.
Morgan Stanley analysts said A2A’s concentration of operations across northern Italy gives it an advantage if the Milan-region data centre build-out materialises.
The bank added that “the data centre thematic [is] a free option at current levels,” describing the exposure as potential upside beyond its base-case valuation.
The report raised its bull-case valuation to €4 per share, citing possible benefits from higher power prices, stronger generation volumes, and a lower cost of capital. The bear case was set at €2.
A2A’s upcoming Capital Markets Day on Nov. 12 could be a catalyst, the analysts said, adding that the event “could catalyse an influx of interest” if the company outlines its positioning and quantifiable upside potential from data centres.
The brokerage projected that the company’s dividend policy, which targets at least 4% annual growth in dividends through 2035, offers rare long-term visibility.
Morgan Stanley calculated A2A’s 2026 dividend yield at 4.2%, maintaining a positive spread of more than 100 basis points over Italy’s 10-year bond yield of 3.4%.
The report also highlighted a roughly 400-basis-point spread between A2A’s free cash flow yield (before growth capital expenditure) and the Italian 10-year bond yield from 2026 to 2030, describing it as a sign of “undemanding valuation” for the company’s existing business.
According to Morgan Stanley, A2A’s ordinary EBITDA is forecast at €2.25 billion in 2025, rising to €2.31 billion in 2026 and €2.41 billion in 2027, while earnings per share are expected to remain near €0.22-€0.24 through the period.
The company’s market capitalization stood at €7.98 billion, with estimated net debt of €6.33 billion at the end of 2025.
The analysts noted that A2A’s exposure to power generation, electricity networks, heating, and water “means multiple segments could be exposed to upside.”
They also cited risks tied to the BTP-Bund yield spread, which has shown a –0.5 correlation with A2A’s share price, and to fluctuations in power prices and weather patterns affecting generation.
Morgan Stanley added that A2A remains “an under-the-radar stock” in a market focused elsewhere, describing its valuation as “bottom-up attractive” given its balance of yield, growth, and optional exposure to Italy’s emerging data centre sector.