Regulated Networks And Offshore Wind Expansion Will Support A Stronger Long Term Outlook

Catalysts

About Iberdrola

Iberdrola is a global electricity company focused on regulated networks, renewable power generation and customer supply across Europe and the Americas.

What are the underlying business or industry changes driving this perspective?

• Large scale investment in regulated networks, with €9b invested in the first 9 months of 2025 and a regulated asset base of about €49.3b, positions Iberdrola to grow allowed revenues and potentially support earnings from a larger, inflation linked asset base.
• Expansion of the offshore wind portfolio, including East Anglia THREE and TWO in the U.K., Vineyard Wind 1 in the U.S. and Windanker in Germany, along with 5,500 megawatts under construction, provides visibility on additional generation capacity that can contribute to revenue and EBITDA once fully commissioned.
• Supportive regulatory moves in key markets, such as higher tariffs in New York and Maine, rate updates in Brazil and evolving RIIO frameworks in the U.K., create a backdrop where allowed returns can help sustain EBITDA and support cash flow visibility.
• Partnership and asset rotation activity, with about €8b of transactions signed and co investment commitments with Norges Bank, Kansai and Masdar, can recycle capital into higher priority projects, potentially improving returns on invested capital and supporting net profit.
• Growing demand for clean electricity from data centers and electrification, supported by more than 12 terawatt hours a year of PPAs with technology companies and a strong U.S. and European pipeline, can support long term contracted volumes and contribute to revenue and cash flow stability.

Assumptions

This narrative explores a more optimistic perspective on Iberdrola compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Iberdrola's revenue will grow by 13.6% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 11.5% today to 11.7% in 3 years time.
• The bullish analysts expect earnings to reach €7.8 billion (and earnings per share of €1.16) by about January 2029, up from €5.2 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 28.4x on those 2029 earnings, up from 23.4x today. This future PE is greater than the current PE for the GB Electric Utilities industry at 15.5x.
• The bullish analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.65%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• A large share of Iberdrola's earnings is tied to regulated Networks, and future regulatory reviews in key markets like Spain and the U.K. could result in lower allowed returns or tighter remuneration. This would directly cap growth in the regulated asset base and put pressure on revenue and net profit over time.
• The Iberia blackout and the shift to more synchronous generation are already increasing ancillary service costs. If system operators continue to require more stability services as renewables grow, Iberdrola may keep absorbing part of these costs on multi year contracts, which would drag on margins and EBITDA longer than expected.
• The company is committing large amounts of capital to long lead offshore and onshore projects, with around 5,500 megawatts under construction and a sizeable pipeline. Any delays, cost overruns, auction outcomes that do not clear at acceptable prices, or weaker PPA terms could reduce the returns on this invested capital and weigh on earnings and cash flow.
• The plan relies heavily on continued tariff uplift and supportive frameworks in the U.S. and Brazil. Slower or less favorable rate case outcomes, or currency weakness in markets such as Brazil, could erode the contribution from these regions and limit growth in revenue and net profit reported in euros.
• Iberdrola is using asset rotations, partnerships and equity issuance to fund record investment while managing around €48.5b of net debt. If future asset sales or partnerships are less attractive, or if funding costs rise faster than expected, the group may face pressure on free cash flow, interest expenses and ultimately earnings growth.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Iberdrola is €20.5, which represents up to two standard deviations above the consensus price target of €17.32. This valuation is based on what can be assumed as the expectations of Iberdrola's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €20.5, and the most bearish reporting a price target of just €9.7.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2029, revenues will be €66.7 billion, earnings will come to €7.8 billion, and it would be trading on a PE ratio of 28.4x, assuming you use a discount rate of 7.6%.
  
• Given the current share price of €18.62, the analyst price target of €20.5 is 9.2% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.