ELE: Margin Normalization And Sector Rotation Will Shape Future Return Profile

Analysts have nudged their fair value estimate for Endesa higher to approximately EUR 27.94 from about EUR 27.16, reflecting slightly stronger expected revenue growth and a modestly richer future earnings multiple, even as they factor in normalizing electricity and gas margins along with a less favorable stance on traditional generators.

Analyst Commentary

Recent research updates signal a more cautious stance on Endesa, with several valuation frameworks resetting to reflect normalizing commodity spreads and a less favorable view on conventional generation relative to renewables focused peers.

Bearish Takeaways

• Bearish analysts argue that Endesa screens expensive versus the broader utilities group, particularly when benchmarked against companies with larger, faster growing renewables portfolios.
• There is concern that electricity and gas margins, currently at historically elevated levels, will normalize over the next few years, reducing earnings power and justifying lower target prices.
• Shifts in European sector preferences toward renewables and away from traditional generators are seen as a structural headwind for Endesa's valuation multiple and relative share price performance.
• Some forecasts now embed lower upside potential to prior price targets, reflecting a view that execution on growth and capital allocation may not be sufficient to offset margin compression and sector rotation.

What's in the News

• Endesa confirmed its earnings guidance for 2025, stating it is on track to reach the upper end of its net income forecast, supported by current results that align with prior expectations (Key Developments).
• The company reiterated that it expects to achieve the top end of its Capital Market Day guidance for full year 2025, signaling confidence in its operational and financial trajectory (Key Developments).

Valuation Changes

• Fair Value Estimate has risen slightly from approximately €27.16 to about €27.94 per share, implying a modest uplift in long term expectations.
• Discount Rate is unchanged at 7.65 percent, indicating no shift in the assumed cost of capital or risk profile.
• Revenue Growth has increased slightly from roughly 4.61 percent to about 4.83 percent annually, reflecting a marginally stronger top line outlook.
• Net Profit Margin has edged down slightly from around 8.23 percent to about 8.20 percent, suggesting a small expected dilution in profitability.
• Future P/E multiple has risen modestly from about 16.9x to roughly 17.3x, pointing to a slightly richer valuation assumption for Endesa's earnings stream.