In this article, we discuss the 10 European utility stocks to buy now.
Europe intends to make an investment of $1.02 trillion in the next decade to reduce its carbon emissions by 50% – 55% by 2030 and become carbon neutral by 2050. This move intends to provide impetus to the ailing European economy. Goldman Sachs has termed this development as the biggest economic stimulus in Europe since the Marshall Plan, which was enacted to counter the destruction across the region caused by the Second World War. The New York-based diversified financial services firm thinks that it will cost around $7.13 trillion (€7 trillion) to execute the plan completely. Furthermore, the program will provide a boost to long-term sustainable GDP and employment growth due to significant investment in the field of automotive, industrials, and power infrastructure.
To aid the utility sector and achieve the carbon emissions reduction target by 2030, the 27 members of the European Union (EU) have come up with a National Energy Plan (NEP). Goldman Sachs thinks that the boost in capital expenditure and other positive developments could increase the earnings of European utility companies sooner than anticipated. The NEP is anticipated to increase capital expenditure in the field of power transmission and energy generation through renewable sources by 65%. To incorporate the impact of NEP into the fundamentals of these companies, the investment firm has increased the earnings per share (EPS) estimate of European utility companies for the period 2025 to 2030 by an average of 2.5%. In addition to the European utility companies, notable multinational firms such as Alphabet Inc. (NASDAQ:GOOG), Microsoft Corporation (NASDAQ:MSFT), and General Motors Company (NYSE:GM) have also shown commitment to reducing carbon footprint through various reforms.
Green Investment
To give a further boost to renewable sources of generating energy, the EU lawmakers passed a law that termed investment in nuclear plants as ‘green’ investment. However, this requires the companies to switch over to accident-tolerant fuels by 2025 and have a proper plan in place for the final disposal of radioactive waste from 2050. Nearly half of the low-carbon electricity generated in the EU is through nuclear energy. The group is unable to reach a consensus on the role of nuclear energy in the future energy mix. Only 13 EU members are dependent on nuclear energy for achieving the 2030 carbon emission targets.
Our Methodology
We have analyzed the business fundamentals of these companies to assess their current standing in the utility sector. Furthermore, we have looked into the growth plans of these companies in view of the changing trends in the utility industry. The analyst ratings have also been included to provide readers with the overall market sentiment on these stocks. The companies have been ranked according to their market capitalization as of August 17.
10 European Utility Stocks to Buy Now
10. Veolia Environnement S.A. (OTC:VEOEY)
Market Capitalization: $17.68 billion
Veolia Environnement S.A. (OTC:VEOEY) is a diversified French utility company providing three key services, namely energy, waste management, and water management.
Veolia Environnement S.A. (OTC:VEOEY) provides a strong dividend yield of nearly 4% as of August 17. The company is in the middle of a merger with Suez, another public utility company, and has received approval from almost all the regulatory authorities except the UK-based Competition and Markets Authority (CMA). To resolve the concerns of the CMA, Veolia Environnement S.A. (OTC:VEOEY) is offloading the waste management business of Suez in the UK to the Australian Macquarie Group for $2.4 billion.
Ajay Pate at Goldman Sachs has termed Veolia Environnement S.A. (OTC:VEOEY) a global leader in Environmental Services following the merger with Suez. The analyst has given the stock a Buy rating with a target price of $38.68 in a report issued to investors on April 19. Pate anticipates the company’s EBITDA to compound at an average growth rate of 7% from 2021 to 2025.
9. EDP – Energias de Portugal, S.A. (OTC:EDPFY)
Market Capitalization: $20.55 billion
EDP – Energias de Portugal, S.A. (OTC:EDPFY) is a Lisbon, Portugal-based vertically integrated regulated electric utility company that generates, transmits, and distributes electricity across the Iberian peninsula. The company has the distinction of being the fourth biggest producer of electricity through wind energy, and 75% of the electricity generated by the entity is from renewable sources.
On June 10, Stefano Bezzato, the head of European Utilities Research at Credit Suisse, increased the price target on EDP – Energias de Portugal, S.A. (OTC:EDPFY) from $55.87 to $57.90 per ADR and maintained an Outperform rating on the stock. One American Depository Receipt (ADR) of EDP represents 10 common shares. EDP – Energias de Portugal, S.A. (OTC:EDPFY) stock offers a forward dividend yield of 3.88% as of August 17.
Analysts believe that EDP – Energias de Portugal, S.A. (OTC:EDPFY) is protected from the impact of rising inflation due to the host government’s tariff agreements. Furthermore, the company has a strong outlook as it will also benefit from an upgrade to its infrastructure due to the green agenda.
8. SSE plc (OTC:SSEZY)
Market Capitalization: $23.62 billion
SSE plc (OTC:SSEZY) is a Perth, Scotland-based producer of electricity through renewable sources and has one of the biggest electricity networks in the UK.
In the Q1 FY23 results, SSE plc (OTC:SSEZY) revealed a jump in earnings due to higher power prices. The company also guided that it anticipates a full-year EPS of $1.45. SSE plc (OTC:SSEZY) will receive a further boost later in 2022 when the Seagreen offshore wind farms come online and commence power generation. This project is a joint venture with TotalEnergies SE (NYSE:TTE) and is located near the east coast of Scotland. When the project becomes operational, it will be able to capitalize on the high-power prices and become an integral source of electricity through renewable energy.
On May 12, Andrew Fisher at Berenberg upgraded SSE plc (OTC:SSEZY) stock from a Hold to a Buy rating and increased the target price from $20.44 to $26.60. The analyst anticipates the renewables and transmission segment of the business to play an important role in the overall growth of the company as the UK is moving towards a net zero carbon emissions target by 2050.
7. E.ON SE (OTC:EONGY)
Market Capitalization: $25.36 billion
E.ON SE (OTC:EONGY) is an Essen, Germany-based operator of energy networks. The company provides energy to nearly six million households in the UK.
E.ON SE (OTC:EONGY) reported an adjusted EPS of 55 cents (€0.54) for the first half of 2022 and guided that it foresees the full year 2022 adjusted EPS to be in the range of 89 cents to 97 cents (€0.88 to €0.96). Furthermore, the company saw its revenue increase by 59.9% YoY to $53.65 billion (€52.84 billion) during the same time period. E.ON SE (OTC:EONGY) offers a forward annual dividend yield of 5.36% as of August 17.
The company also revealed that it had reduced the value of its stake in the Nord Stream 1 gas pipeline by $715 million to incorporate the impact of high uncertainty following the start of the conflict between Russia and Ukraine. The pipeline is responsible for transporting gas from Russia to Germany. It is presently operating at only one-fifth of its capacity due to a stand-off between Russia and the European countries that are dependent on Russian gas.
In a research note issued on July 14, Andrew Fisher at Berenberg gave E.ON SE (OTC:EONGY) stock a target price of $12.69 (€12.50) with a Buy rating.
6. RWE Aktiengesellschaft (OTC:RWEOY)
Market Capitalization: $30.08 billion
RWE Aktiengesellschaft (OTC:RWEOY) is a German energy company. It is the second biggest company in the world that is generating electricity through offshore wind power and the third biggest in Europe, producing electricity through renewable sources.
RWE Aktiengesellschaft (OTC:RWEOY) has transformed itself from a coal and nuclear-based utility. The trading arm of the company, along with Uniper SE, has entered into an agreement with the German government to operate floating LNG terminals to ease the supply shortage of natural gas. Germany has been forced to rely on LNG imports to counter the impact of a reduction in the supply of natural gas from Russia. The two new terminals would allow Germany to receive gas throughout the winter.
On August 8, Rob Pulleyn at Morgan Stanley increased the price target on RWE Aktiengesellschaft (OTC:RWEOY) from $50.77 to $53.81 and maintained an Overweight rating on the stock. RWE Aktiengesellschaft (OTC:RWEOY) has a forward annual dividend yield of 2.19% as of August 17, translating into an annual dividend of $0.95 per share.
Besides RWE Aktiengesellschaft (OTC:RWEOY), companies like Alphabet Inc. (NASDAQ:GOOG), Microsoft Corporation (NASDAQ:MSFT), and General Motors Company (NYSE:GM) have also made investments in clean energy solutions.
5. ENGIE SA (OTC:ENGIY)
Market Capitalization: $32.03 billion
ENGIE SA (OTC:ENGIY) is a La Défense, France-based utility company involved in generating and transmitting energy through natural gas, nuclear, and renewable energy sources.
ENGIE SA (OTC:ENGIY) offers an attractive dividend yield of 6.83% as of August 17. The yield translates into a forward annual dividend of $0.90 per share.
According to experts, ENGIE SA (OTC:ENGIY) is delivering on its restructuring plan. All the headline numbers in the financial statements came in above the consensus forecasts for Q2 2022. ENGIE SA (OTC:ENGIY) has been able to lower its dependence on Russian natural gas from 15 terawatt hours to four terawatt hours only as of the second quarter of the year. Like E.ON SE (OTC:EONGY), the company also reduced its stake in the Nord Stream 1 gas pipeline from $609.9 million to $304.6. Furthermore, ENGIE SA (OTC:ENGIY) has geared itself to survive the extreme weather without the need for Russian natural gas. The lack of reliance on Russian gas sets the company apart from its competitors.
4. Ørsted A/S (OTC:DNNGY)
Market Capitalization: $45.96 billion
Ørsted A/S (OTC:DNNGY) is a Fredericia, Denmark-based energy company. The company is the biggest producer of electricity through offshore wind power in the world.
Ørsted A/S (OTC:DNNGY), previously known as Danish Oil and Natural Gas (DONG) Energy, transitioned from being a coal, natural gas, and crude oil company to a firm that now relies on wind and solar power. Other European integrated energy companies like Shell plc (NYSE:SHEL) and TotalEnergies SE (NYSE:TTE) are following the same path.
According to a report issued by McKinsey, Ørsted A/S (OTC:DNNGY) has an offshore wind capacity of 4.4 gigawatts (GW) as of 2020 and plans to increase it to 13GW by 2030. The company has over 15 offshore wind auctions and tenders scheduled for 2022-2023. Among the international prospects, there are five projects in the US, two in the Netherlands, and one in Ireland in the pipeline. Investors must note that one ADR of Ørsted A/S (OTC:DNNGY) is equivalent to one-third of a common share listed on the Copenhagen stock exchange.
3. National Grid plc (NYSE:NGG)
Market Capitalization: $52.21 billion
National Grid plc (NYSE:NGG) is a London, England-based electricity and natural gas utility company.
National Grid plc (NYSE:NGG) stock offers an attractive forward dividend yield of over 4.5%. The yield translates into a quarterly dividend of $0.81 per share.
On August 16, National Grid (NYSE:NGG) revealed that it had discovered strong supplies of green hydrogen and renewable gas for prospective use by New York and Massachusetts-based customers. This will help the company fulfill its objectives of having a 100% fossil-free gas network by the year 2050. According to National Grid plc (NYSE:NGG), a total of at least 33T BTUs will be accessible for the company in the following three years, which is more than twice the 15T BTUs required in 2025.
In a note issued to investors on June 24, Mark Freshney at Credit Suisse reiterated an Outperform rating on National Grid plc (NYSE:NGG) stock and increased the target price from $72.60 to $74.10.
ClearBridge Investments shared its stance on National Grid plc (NYSE:NGG) in its Q2 2022 investor letter. Here’s what the firm said:
“Defensive sectors — electric, gas and water — saw some profit taking globally after a strong start to the year, with National Grid plc (NYSE:NGG) and SSE (OTCPK:SSEZF) in the U.K. the main individual detractors. Energy infrastructure, mostly in Canada, performed poorly on profit taking, as the strong demand for commodities, which has been driven by structural underinvestment and supply disruptions related to the war in Ukraine and which led to exceptional performance in the first quarter, was overpowered by concerns of how a global recession would impact demand.”
According to Insider Monkey’s proprietary data, 10 hedge funds held a stake in National Grid plc (NYSE:NGG) as of the second quarter of 2022.
2. Enel SpA (OTC:ENLAY)
Market Capitalization: $52.55 billion
Enel SpA (OTC:ENLAY) is a Rome, Italy-based electricity and natural gas distributor.
The company plans on transitioning to renewable energy sources for power generation in the future. Enel SpA (OTC:ENLAY) intends to conduct a capital expenditure outlay of nearly $173 billion from 2021 to 2030 in line with its decarbonization goals.
Amongst all the utility companies covered in this list, Enel SpA (OTC:ENLAY) has the highest forward dividend yield of 7.45% as of August 17. For the first half of 2022, the company saw its revenue increase by 85.3% YoY to $68.39 billion. Meanwhile, GAAP EPS was posted at 16 cents. According to the management, Enel SpA (OTC:ENLAY) will increase its renewable energy capacity by 84 GW over the course of this decade. This would include energy storage of 9 GW. By 2030, the company’s fleet will have a capacity of 129 GW.
1. Iberdrola, S.A. (OTC:IBDRY)
Market Capitalization: $68.46 billion
Iberdrola, S.A. (OTC:IBDRY) is a Bilbao, Spain-based utility company.
Iberdrola, S.A. (OTC:IBDRY) has partnered with BP plc (NYSE:BP) and plans to invest $1 billion in the field of electric vehicle (EV) charging. The company plans to work toward developing green large-scale hydrogen production capabilities. The initiative intends to roll out 11,000 fast EV charging points across Spain and Portugal by 2030. Furthermore, the project intends to launch 5,000 fast EV charging points by 2025. BP will be able to leverage its network of 1,300 retail sites across both countries.
On August 10, Iberdrola, S.A. (OTC:IBDRY) brought the biggest solar power plant in Europe into operation. The $305 million Francisco Pizzaro PV array has a potential capacity of 590MW and will provide power to 335,000 homes in the region. The plant will lower carbon emissions by 150,000 tons every year. Iberdrola, S.A. (OTC:IBDRY) intends to increase its renewable energy installed capacity to 25 GW in the upcoming years from its current total of over 19.3 GW.
You can also take a peek at the 10 Best Dividend Stocks to Buy in 2022 and 12 Best FMCG Stocks to Buy Now.
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Disclose. None. 10 European Utility Stocks to Buy Now is originally published on Insider Monkey.
