EDP as a safe capital allocation with a potential upside of 28% with steady dividends

The insiders are buying the stock. Fundamentally Edp is undervalued due to a potential growth that I see in its business. Energy prices in Iberia increased last year 2025 and consumption are increasing around 3% over year. EDP is one of the big players that control all the value chain from production until commercialisation of the electricity. Almost 100% from the energy produced becomes from renewables (hydro, wind, sun). They are using the same power lines to hybrid the farms. Hydro became hydro/ photovoltaic or wind farm became wind/photovoltaic. So they can produce more energy with lower prices than competitors. The dams are full for this time of the year so it is expected a production growth for this year alone from hydropower. The hydropower is very strategical for EDP because they can produce when the prices are higher and reduce production when are lower and they also do some pumping back to dam at low prices and turbine the water again at higher prices when the water it in the dams are in low levels. Edp it is also in regulated market of electricity transportation in each the tariffs were approved and increased, for the 2026-2028. It is expected for this event alone an increase in earnings of about 100 million or 0,025€ per share.

Edp is a multinational company with a significant business in Brasil, US and Europe. It is conservative managed to allocate the capital where it is more profitable with a prudent approach. It also sells some wind farms lands profit from that and allocate the capital in the construction of new wind solar farms.

There are a very high rate of adoption of electrified vehicles in Iberia and it expected that some data centres will be installed in theses markets, for that reason It is seen already a steady increase in consumption that can have a positive effect in production price per megawatt.

Doing a comparative analises, the multiples PER, EV/EBITDA, EV/Sales with it main competitors in Iberia, Endesa and Iberdrola are lower. I calculated that it were equal to Iberdrola EDP should quote around 5€ - 5,30€.

It is expected to be reported for the full year of 2025 earnings of 1.250 -1.300 millions and for 2026 - 2028 1.400 millions. That gives 0,3125 - 0,325€ a share. A PER of 13 comparing with a PER of 18 for Iberdrola. Projected PER 2026 12,29.

Edp is actively managing the debt reducing the long term cost of interests paid. For this reason it is expected a reduction in financial costs due to to lower interest rates and rating upgrades in course of the years.

EDP constantly increases their dividends and is expected to pay this year 0,205€ per share which gives a dividend yield of 4,70%, so it is a good company to allocate a portion of capital. In a time frame of about 16 months if you sum the dividends paid in May 2026, 2027 and an expected valuation of 5, you would profit for this period a 25,8%, (annualised 19,35%). I see EDP fully valued at 5,50€ but for prudential investment I considered a sell price of 5€.

I am long on EDP.