J.P. Morgan has upgraded Naturgy Energy Group SA (BME:NTGY) to an "overweight" rating, raising its price objective to €30.50 from €26.70 and setting that target for December 2027. The bank noted that the move reflects expected earnings support from a shifting commodity-price backdrop and changes in the company's shareholder base that could relieve a substantial stock overhang.
The revised target compares with a last closing price of €26.58 on April 13. J.P. Morgan highlighted two catalysts it expects to drive the shares over the next 18 months: first, a new commodity price environment that introduces upside risk to earnings estimates for the company's Power Generation and Energy Management businesses; and second, regulatory developments including the temporary suspension of Spain's 7% generation tax as well as a favorable outcome in gas regulation.
On the forecast side, J.P. Morgan nudged up its 2026 adjusted earnings per share estimate to €2.05 from €2.03 and lifted projected EBITDA to €5.42 billion from €5.36 billion. The bank noted its 2026 EPS projection sits 2.5% above the Bloomberg consensus for that year.
Shareholder structure changes also featured prominently in the note. J.P. Morgan observed that CVC still holds a 13.8% stake after BlackRock placed its remaining 11.4% holding in March. The brokerage said these shifts could prompt further stake sales and effectively end a large stock overhang, allowing Naturgy to pursue a different capital allocation approach.
Quantifying potential uses of capital, J.P. Morgan estimated Naturgy could complete approximately €7 billion of acquisitions at roughly 10x EV/EBITDA while retaining a 300-350 basis point buffer for funds from operations to net debt, thereby preserving a BBB credit rating. The bank calculated such deal activity could drive EPS accretion of up to 5.6%. It also clarified that its base-case estimates do not include any mergers and acquisitions.
For 2026, J.P. Morgan expects earnings support from higher hydroelectric output and the temporary removal of the generation tax, while it assumes no benefit from higher gas prices because U.S.-sourced volumes are fully hedged. Looking into 2027, the brokerage assumes only a modest margin improvement and factors in a reduction of about 35 TWh in long-term LNG volumes, reflecting the loss of Yamal LNG volumes.
The bank's 2026 financial forecast for Naturgy includes revenue of €19.31 billion and adjusted EBITDA of €5.42 billion, with adjusted net income of €1.99 billion and EPS of €2.05. Cash flow from operations is projected at €4.03 billion, with free cash flow of €978 million that incorporates a €900 million working capital outflow. Net debt is estimated at €13.4 billion, equivalent to 2.5x EBITDA.
J.P. Morgan also removed a 10% liquidity discount from its valuation, citing the shareholder changes which could "effectively meaning this would be the clean-up trade that brings the large stock overhang to an end."
The note contained promotional material about a separate AI-driven stock selection product that evaluates NTGY among thousands of companies using over 100 financial metrics and cited historical examples of past winners. That material discussed how the product identifies stocks with attractive risk-reward profiles and invited readers to explore whether NTGY features in any strategies.
Implications
J.P. Morgan's upgrade and higher target reflect a view that both cyclical commodity moves and near-term regulatory relief can support Naturgy's earnings, while changes in the shareholder register may remove a structural constraint on valuation. The bank's acquisition capacity assessment and retention of a credit buffer indicate a focus on maintaining investment-grade metrics even if the company pursues M&A.
What the report assumes
- 2026 EPS of €2.05 and EBITDA of €5.42 billion.
- No benefit from higher gas prices in 2026 due to full hedging of U.S.-sourced volumes.
- Only a small margin increase in 2027 and a 35 TWh reduction in long-term LNG volumes tied to the loss of Yamal LNG volumes.