Goldman Sachs (GS) cut EDP’s target price to 4.40 euros over the next 12 months, compared to the previous forecast of 4.85 euros. Despite the cut, it maintained its ‘buy’ recommendation. EDP is today falling 3.38% to 3.49 euros on the Lisbon stock exchange.
The North American bank is concerned about falling electricity prices, which could lead the energy company to reduce the development of renewable energy: 30% less annual additions compared to the strategic plan, predicts the GS in its base scenario.
“We believe EDP shares could take a breather for three reasons: (1) we see a 10% downside risk on the Bloomberg EPS consensus (earnings per share) to 2026-27, and our estimate implies almost no growth Bottom line until 2028; (2) the fall in energy prices implies lower cash flows and, as a result, greater leverage: EDP may recalibrate investments – this may dilute earnings in the medium term; (3) in our estimates for 2026, EDP trades at a premium of 14 times the price to earnings for the sector (12.5 times) and direct pairs (between 9 times and 13 times)”, can be read in the note released today to which JE had access.
“We expect solid profits for 2024 – with hedges attractions, good water production and expanding supply margins – we believe that the sharp decline in electricity prices and the reduction in organic investments implies more pressure on medium-term earnings”, can be read in the note, pointing out that “we see almost no growth in net income until 2028”.
Regarding the company’s leverage, GS points out that “a lower earnings forecast leads us to expect leverage (net debt/EBITDA) to reach 4.5 times in 2025-28. To support the balance sheet, we believe EDP may have to slow wind/solar development: our base case assumes a 30% reduction in annual capacity additions versus the 2023 strategic plan. This will reduce earnings growth on average term”.
“We believe that the share already largely reflects current headwinds: our new target price of 4.40 euros per share implies an increase of 20% compared to the current level”, hence maintaining the ‘buy’ recommendation.
