Two major banks upgraded their recommendations on Naturgy on Thursday, reflecting what they described as stronger-than-expected earnings momentum and a clearer, more growth-oriented strategic direction for the Spanish gas and electricity company.
Morgan Stanley moved its rating to Overweight from Equal-weight and raised its price target to 2 from 7. BNP Paribas similarly shifted to Outperform from Neutral, setting an identical target of 2. The moves came as Naturgy shares rose 3.7% in Madrid, taking the stock to four-year highs after a year-to-date gain in excess of 12%.
Market reaction and valuation
BNP Paribas and Morgan Stanley both highlighted a combination of near-term tailwinds and improving fundamentals in explaining their upgrades. The 2 price target implies roughly 14% upside relative to Wednesday s closing price of 8. Share gains on the upgrade day underscored investor receptivity to the updated guidance from both houses.
Drivers behind the upgrades
Both banks pointed to Naturgy s strong first quarter and to a volatile gas price environment that has acted as a near-term tailwind for the company s results. Morgan Stanley provided a specific earnings projection, forecasting 2026 net income of around 2.1 billion , which it said is roughly 10% above current company guidance and 4% ahead of consensus. The bank also flagged the potential for a guidance upgrade when Naturgy reports first-half results in July as a near-term catalyst for shares.
Shareholder structure and strategic tone
A shift in Naturgy s shareholder base was central to the more positive assessments. Morgan Stanley noted the impact of BlackRock s selldown of its entire 11.4% stake in early March, and suggested this opens the door to a board composition more focused on sustainable long-term growth rather than on short-term shareholder returns. The bank also highlighted what it described as a noticeable change in management s tone on growth between the full-year 2025 results and the company s first-quarter call in April.
"One of the messages coming from the board of directors is unanimous support for the company to actively explore growth opportunities," the company s head of financial markets and corporate development said on the April call.
Capital deployment and acquisition capacity
Morgan Stanley estimated that Naturgy could pursue approximately 6 billion of acquisitions without breaching the minimum leverage threshold required to preserve its current credit rating. Management has flagged a preference for electricity assets in Western Europe and the United States as potential targets for expansion. Despite that capacity, Morgan Stanley noted that the market currently gives limited credit to a near-term inflection in the stock s story, observing the shares trade at around a 15% discount to peers on 2027e price-to-earnings.
Cost reductions and balance sheet strength
BNP Paribas pointed to cost savings as another lever underpinning the upgrade. The bank noted that Naturgy s 2018-2022 efficiency program delivered 740 million in operating expense reductions, surpassing the program s initial target of 500 million. Analyst Manuel Palomo from BNP Paribas wrote that a clearer, more industry-focused shareholder structure combined with a strong balance sheet supports a generous dividend policy while enabling both organic and inorganic growth initiatives.
Risks and outstanding uncertainties
Both banks flagged several uncertainties. Media reports have suggested the private equity investor CVC may seek to monetise its 13.8% stake through a share placement, a scenario that remains unconfirmed and could affect the stock. Morgan Stanley emphasised that medium-term risks for the equity case centre on execution and consistency in capital allocation decisions. Finally, while a guidance upgrade at the half-year results was highlighted as a possible catalyst, it remains a potential rather than a confirmed outcome.
Bottom line
The combined analyst upgrades and raised price targets from two major firms have lifted Naturgy shares to multi-year highs and focused attention on the company s earnings momentum, strategic direction and capacity for acquisitions. Market participants will be watching the July interim results and any confirmed moves by large shareholders as the next potential drivers of share performance.