On Friday, UBS adjusted its stance on Endesa, S.A. (ELE:SM) (OTC: ELEZY), shifting the rating from Buy to Neutral. The firm also increased the price target to EUR 19.60, up from the previous EUR 19.20. This decision follows Endesa's stock performance, which has seen a 1% increase compared to a decline in the sector and among peers.
Endesa's first-quarter financial results, although slightly below expectations, indicated positive trends for the year. The company's management has confirmed the financial guidance for FY24. UBS cited a more optimistic view on the distribution returns for the upcoming regulatory period, based on a benchmarking analysis of European Transmission System Operators (TSOs), as a primary reason for the slight earnings and valuation improvements.
Despite the positive outlook, the recent 17% rebound in Endesa's share price since the lows in March has been a factor in UBS's rating change. The new price target suggests a modest 2% potential upside, leading to the neutral rating. Additionally, discussions earlier in the year about a possible increase in the cap for grid capital expenditures in exchange for lower taxes could represent an upside for the company. Conversely, the evolution of integrated margins remains uncertain, with UBS maintaining a flat assumption through 2026, aligned with guidance from November 2023.
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