Goldman upgrades Iberdrola on earnings growth and grid investment outlook

Goldman Sachs has raised its rating on Spanish utility Iberdrola to a "buy" from "neutral," boosting the firm's price target to €25 from €21. The investment bank cites strong earnings growth and potential dividend payouts as the primary factors driving shareholder value. Based on this upgrade, Goldman estimates a 21.3% upside from Iberdrola's September 30 closing price of €20.61.

The brokerage expects Iberdrola's earnings to expand at a compound annual rate of around 10% between 2026 and 2031. Moreover, possible upward revisions to market profit estimates could further strengthen the company's stock performance.

Goldman Sachs anticipates Iberdrola will unveil an extended investment plan through 2030 or 2031 during its April 2027 capital markets day. The firm projects capital expenditures of approximately €100 billion over the 2026-2031 period, which is higher than its earlier estimate of €85 billion. Most of this increase will be directed towards power grids and repowering wind farms, particularly in the United States.

Around 70% of the planned investments will focus on regulated power networks, primarily in the United States and Britain. Goldman estimates Iberdrola's cash flow to remain negative through 2031, with net debt relative to earnings potentially increasing to about 4 times by the end of the plan.

The investment bank forecasts Iberdrola's net profit at €10.2 billion in 2030 and €10.9 billion in 2031. Goldman has raised its earnings-per-share forecasts by approximately 20%, which supports its higher valuation for the stock.

Deutsche Bank also recently upgraded Iberdrola to a "buy" from "hold," raising its price target to €22 from €18.50. This upgrade is based on stronger earnings expectations, higher power prices, and potential upside from the company's next strategic plan update, expected in 2027. Deutsche Bank expects Iberdrola to extend its existing 2025-2028 plan through 2030 and possibly raise its annual adjusted net income growth target to 10% from 8%.

This would result in adjusted net income of around €10 billion by 2030, about 10% above Bloomberg consensus.

Goldman Sachs maintains that Iberdrola still trades at a double-digit premium to peers in terms of enterprise value to earnings and price-to-earnings measures for 2026-2030. However, the firm also highlights risks related to weaker power prices, regulatory changes in Spain and Britain, and lower returns allowed on regulated networks.

Approximately 45% of Iberdrola's earnings come from its networks business, while roughly two-thirds of its EBITDA is generated outside Spain and the European Union, making the company exposed to currency fluctuations, particularly in the U.S. dollar, British pound, and Brazilian real.