Morgan Stanley has moved CEZ out of its negative rating band, upgrading the Czech utility to "equal-weight" from "underweight" and assigning a price target of CZK1,250. The change follows shareholder approval at the company annual general meeting of a proposal to optimise CEZ's ownership structure by establishing a new entity focused on customer-facing activities.
The brokerage interprets the AGM vote as a material step toward a potential group restructuring that could align with the Czech state’s publicly stated objective to bring power generation back under national control. Morgan Stanley noted that the plan approved by shareholders would create a distinct vehicle for customer operations, which the broker sees as central to any wider reorganisation.
Despite the upgrade, Morgan Stanley emphasised that uncertainty remains around the details and ultimate outcome of the reorganisation and how it will affect existing shareholders. The firm also warned that the market-implied valuation for the proposed customer activities unit appears elevated relative to typical ranges.
Crucially, Morgan Stanley said the recent AGM approval has reduced the probability that the restructuring process will fail or result in significant value erosion for minority investors. That reduction in downside risk was the primary reason the brokerage withdrew its previous negative rating.
To illustrate potential financial outcomes, Morgan Stanley modelled a hypothetical sale of a 49% stake in the customer activities business. Using an EV/EBITDA valuation range of 6 to 12 times, the brokerage estimated proceeds would fall between approximately CZK30 billion and CZK195 billion.
Those proceeds, Morgan Stanley noted, would correspond to roughly 5% to 30% of CEZ's reported market capitalisation of CZK672.23 billion. The broker concluded that if the state or another party sought to buy out the company's roughly 30% minority stake, additional participation beyond the initial buyer could be required to complete such a transaction.
Morgan Stanley also maintained a cautionary view on CEZ's underlying fundamentals. The broker said shares trade at about 10 times estimated 2026 EV/EBITDA, versus roughly 9 times for integrated utility peers. This is despite Morgan Stanley's forecast that CEZ EBITDA will decline at a compound annual rate of 5% between 2026 and 2028, while peers are projected to register roughly 5% growth over the same period.
On a segment basis, the brokerage calculated that the current share price implies an approximate 2027 EV/EBITDA multiple of 11.5 times for the customer activities business. That implied multiple sits near the top of Morgan Stanley's 6 to 12 times comparator range for integrated peers, reinforcing the broker's comment that the valuation may look rich.
Looking at near-term earnings metrics, Morgan Stanley forecasts adjusted earnings per share of CZK67.6 for 2026, up from CZK53.5 estimated for 2025. At the same time the brokerage expects consolidated EBITDA to decline to CZK113.88 billion in 2026 from CZK137.04 billion in 2025. The analysts also project an increase in dividend per share to CZK54 in 2026, from CZK42 in 2025.
Market pricing as of June 1 shows CEZ shares closing at CZK1,252, which is effectively in line with Morgan Stanley's newly set price target of CZK1,250.
The upgrade and accompanying analysis underline a balancing act for investors. On one hand, shareholder approval for an ownership optimisation measure reduces the immediate execution risk of a reorganisation. On the other hand, Morgan Stanley's modelling highlights valuation and earnings trajectory concerns that remain relevant for holders of CEZ stock and market participants monitoring utility sector dynamics.