Renewable Energy Expansion And Digitalization Will Build A Resilient Future

Key Takeaways

• Expansion in renewables and digital grid modernization positions the company for sustained growth, operational efficiency, and margin improvement amid the global energy transition.
  
• Strategic de-risking, asset streamlining, and focus on electrification underpin stable revenues, stronger balance sheet, and greater earnings predictability.
  
• Concentrated investment in core European markets, FX volatility, stagnant demand, M&A risks, and growing operational complexity challenge Enel's profitability and revenue growth prospects.

Catalysts

Operates as an integrated operator in electricity and gas industries worldwide.

• Enel's ongoing expansion of renewable energy assets-including brownfield acquisitions in Europe, the U.S., and Australia, and the company's 73% renewable share of total production-positions it to capture rising demand from the global energy transition and decarbonization policies, driving top-line revenue growth and long-term earnings visibility.
  
• Enel's significant investment in digitalization (e.g., smart grids, automation, BESS capacity now at 11.5GW) and grid modernization is yielding improved operational efficiency, evidenced by €1 billion in cash cost savings already realized toward its 2027 target, supporting margin expansion and sustained net income improvement.
  
• The electrification of transportation and industry, especially in growth regions like the Americas and Spain where demand is increasing, provides a structural tailwind for higher electricity sales volumes and supports stable or rising future revenues.
  
• A more resilient, risk-managed business model-seen in initiatives to decouple earnings from power price volatility, secure long-term pricing with retail customers, and increase fixed sales coverage-limits earnings downside and increases forward earnings predictability.
  
• The company's disciplined asset base streamlining, completion of non-core disposals, and net debt reduction (down €2 billion YoY with net debt/EBITDA at 2.5x) strengthen balance sheet flexibility, leaving room for value-accretive investments and buybacks, which support EPS and net margin growth over time.

Enel Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Enel's revenue will grow by 4.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.8% today to 8.0% in 3 years time.
• Analysts expect earnings to reach €7.1 billion (and earnings per share of €0.7) by about August 2028, up from €6.0 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.7x on those 2028 earnings, up from 13.4x today. This future PE is greater than the current PE for the GB Electric Utilities industry at 15.0x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.83%, as per the Simply Wall St company report.

Enel Future Earnings Per Share Growth

Risks

• Enel's heavy allocation of CapEx (55%+ to networks and 80% to Europe) concentrates its investment risk in core markets like Italy and Spain, leaving the company exposed to adverse regulatory or political changes that may impact returns on regulated assets, negatively affecting net margins and long-term earnings.
  
• Persistent headwinds from FX volatility-particularly in Latin America and Brazil-have resulted in accounting losses and negative impacts on EBITDA and net income and remain a structural risk due to ongoing currency devaluation, which may erode reported revenue and profits over time.
  
• Limited or flat electricity demand growth in mature core markets such as Italy (with demand described as "flattish" and heavily influenced by weather rather than secular growth) constrains long-term revenue expansion, making it harder for Enel to achieve material organic top-line growth in these regions.
  
• The company's strategy of brownfield acquisitions and continued M&A in the EU and US, while lower risk, still introduces execution risk and the potential for overpaying in competitive markets, which could dilute return on capital and pressure future net profit margins if not properly integrated or if market/economic conditions shift.
  
• Enel faces increasing operational and regulatory complexity, especially in network and retail businesses (e.g., shifts in retail customer pricing, hedging strategies, and churn management), as well as rising compliance costs from environmental/social scrutiny and cyber risks associated with digitalization-all of which can add to cost bases and weigh on future EBITDA and net margins.

Valuation

• The analysts have a consensus price target of €8.47 for Enel based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €9.55, and the most bearish reporting a price target of just €7.6.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €88.5 billion, earnings will come to €7.1 billion, and it would be trading on a PE ratio of 15.7x, assuming you use a discount rate of 8.8%.
  
• Given the current share price of €7.98, the analyst price target of €8.47 is 5.8% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.