Last Update 06 Jan 26

Fair value Decreased 0.013%

REP: Upstream Merger Options And Refining Margin Risks Will Shape Outlook

Analysts have made a very small trim to their fair value estimate for Repsol to about €16.45. Recent Street research highlights a mix of more cautious views on refining margins and interest around potential corporate actions, which supported an increase in one published price target to €16 from €15.

Analyst Commentary

Recent commentary on Repsol reflects a split view, with some analysts focused on potential corporate moves around the upstream business and others more cautious on refining fundamentals and current valuation levels.

Bullish Takeaways

Bullish analysts point to the reported discussions around a possible reverse merger of Repsol's upstream unit with partners such as APA Corp. as a potential catalyst that could reshape the portfolio and draw fresh investor attention.
The move in one price target to €16 from €15 signals that some analysts see room for the shares to better reflect perceived asset value and optionality from corporate actions.
Talk of upstream consolidation is viewed by bullish analysts as a way to highlight the value of Repsol's exploration and production assets separately from the rest of the group, which could influence how the market prices the stock.
In the short term, the prospect of deal headlines around the upstream unit is seen as a possible support for sentiment, particularly among investors who focus on corporate event risk as a driver of returns.

Bearish Takeaways

Bearish analysts express caution on refining crack spreads and expect them to ease, which they see as a headwind for earnings quality and cash generation relative to current expectations.
The downgrade to an Equal Weight stance, with an unchanged price target of €15.80, reflects a view that the current share price already captures much of the perceived upside, limiting room for a re-rating on fundamentals alone.
Concerns that refining margins could soften lead bearish analysts to question how much support the downstream business can provide if macro conditions become less favorable for refining.
Some cautious views suggest that, until there is more concrete information on any upstream transaction, investors may focus more on execution in the core operations rather than on potential deal premiums.

What's in the News

Repsol is considering a reverse merger of its upstream unit with potential partners, including APA Corp., as one option to list the business in New York, with exploratory discussions reported and prior valuation references of about $19b including debt for the unit when a 25% stake was sold in 2022 (Bloomberg / M&A Rumors and Discussions).
The company is also reported to be in initial talks with other potential merger partners for the upstream business and is reviewing alternatives such as an IPO, a reverse merger with a US listed group, or bringing in another private investor, with no assurance that any transaction will occur (Bloomberg / M&A Rumors and Discussions).
Repsol has indicated that management is preparing the upstream unit for a possible liquidity event, such as a public listing in 2026, while continuing to assess options including an IPO or a further stake sale (M&A Rumors and Discussions).
Repsol and Norwegian Cruise Line Holdings have agreed an 8 year renewable marine fuels supply deal at the Port of Barcelona, including biofuels and, from 2029, renewable methanol sourced from Repsol’s planned Ecoplanta facility in Tarragona, which is designed to process up to 400,000 tons of municipal waste into about 240,000 tons of renewable fuels and circular products annually (Client Announcements).
The company has scheduled an Analyst/Investor Day, which may provide more detail on upstream options, capital allocation, and progress on low carbon projects alongside its broader business outlook (Analyst/Investor Day).

Valuation Changes

Fair Value Estimate was effectively unchanged, moving marginally from about €16.45 to about €16.45 per share.
The Discount Rate edged slightly lower from about 8.36% to about 8.27%, implying a modest tweak to the risk and return assumptions used in the model.
Revenue Growth was maintained at about 3.71%, with only an immaterial numerical adjustment in the underlying input.
Net Profit Margin was held effectively steady at about 5.29%, reflecting no meaningful change to profitability assumptions.
Future P/E was adjusted slightly from about 8.82x to about 8.80x, indicating a very small recalibration of the earnings multiple applied.

Expansion in renewables and strategic green hydrogen and biofuel investments are set to diversify revenue, stabilize earnings, and enable higher-margin growth in low-carbon markets.
Portfolio optimization and technological upgrades should improve operational resilience, drive efficiency, and support stable earnings from both hydrocarbon and customer-focused divisions.
Repsol faces rising regulatory costs, slow renewable transition, high capital needs, and exposure to market and geographic risks, threatening long-term cash flow and profitability.

Catalysts

About Repsol

Operates as a multi-e energy company in Spain, Peru, the United States, Portugal, and internationally.What are the underlying business or industry changes driving this perspective?

Repsol's continued expansion and asset rotations in renewable energy (notably wind, solar, and renewable fuels) are poised to diversify revenue streams, lessen earnings volatility, and capture higher-margin growth in low-carbon markets; this is strengthened by increasing policy support for renewables and rising demand in both the U.S. and Spain, directly impacting future revenue and net margins.
Strategic investments in green hydrogen and advanced biofuels, supported by regulatory mandates (such as Spain's requirement for renewable fuels with non-biological origin), position Repsol to become a leading supplier in Europe, opening new profit pools and enabling long-term earnings growth with double-digit expected project returns.
Optimization of the upstream portfolio-through targeted divestments of high-cost, high-emission assets and investment in scalable, low-cost growth projects in Alaska, the U.K., and North America-should improve production quality, boost cash flow from operations, and raise return on capital employed (ROCE) and net margins over time.
Ongoing technological upgrades in refining, trading, and chemicals, combined with digitalization and efficiency initiatives, are expected to increase operational margin resilience and reduce breakevens, countering industry cost inflation and enabling Repsol to capitalize on solid refining environments and market volatility.
Long-term global energy demand growth, particularly in emerging markets, along with robust European structural demand in middle distillates, aviation, and industrial sectors, provides a stable base for hydrocarbon sales and customer division earnings, supporting revenue growth and margin stability.

Repsol Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Repsol's revenue will grow by 3.5% annually over the next 3 years.
Analysts assume that profit margins will increase from 1.4% today to 4.7% in 3 years time.
Analysts expect earnings to reach €2.6 billion (and earnings per share of €2.5) by about September 2028, up from €668.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €2.9 billion in earnings, and the most bearish expecting €2.2 billion.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 6.6x on those 2028 earnings, down from 24.2x today. This future PE is lower than the current PE for the GB Oil and Gas industry at 24.2x.
Analysts expect the number of shares outstanding to decline 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 9.08%, as per the Simply Wall St company report.

Repsol Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Growing regulatory pressure and increasing carbon pricing in Europe and internationally will raise Repsol's operational costs and reduce net margins for hydrocarbon-based activities over time.
The company's progress in the transition to renewables and low-carbon businesses remains slower and less extensive than that of larger peers, risking future revenue decline if fossil fuel demand contracts more quickly than anticipated.
Heavy capital expenditure requirements in upstream oil and gas projects, combined with upcoming reductions in net CapEx only after 2026, could result in structurally lower free cash flow and compress earnings if market conditions weaken or project delays occur.
Structural risks in key geographies-including economic and political instability in South America, regulatory uncertainty in Venezuela, and power grid risks in Iberia-expose Repsol's revenues and make cash flow more volatile.
Long-term secular decline in oil demand, given accelerating adoption of electric vehicles, improving energy efficiency, and competition from state-owned and renewable energy companies, threatens to erode sales volumes and price realizations, negatively impacting Repsol's revenues and long-term profitability.

Valuation

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

The analysts have a consensus price target of €14.28 for Repsol 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 €18.0, and the most bearish reporting a price target of just €11.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €54.8 billion, earnings will come to €2.6 billion, and it would be trading on a PE ratio of 6.6x, assuming you use a discount rate of 9.1%.
Given the current share price of €14.22, the analyst price target of €14.28 is 0.5% 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.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Analysts React to Repsol’s Upward Valuation as Renewable Fuel Strategy Gains Momentum