JPMorgan has become more constructive on European utilities after a reassessment prompted by higher commodity prices tied to the conflict in Iran. The bank says the price moves are producing both a near-term earnings boost and the potential for a sustained re-rating of the sector, and it upgraded Engie to Overweight.
Previously, JP Morgan had taken a cautious stance on utilities beginning in the second quarter of 2026, driven by expectations that an oversupply of LNG would push commodity prices lower. In the bank's view, that anticipated oversupply is "clearly no longer a concern."
The analysts note that the Iran conflict disrupted roughly 20% of global LNG supply. That shock lifted month-ahead TTF prices to levels 64% higher than pre-war readings and pushed 2028 forward prices up by more than 20%.
Lead analyst Javier Garrido and his team describe these developments as creating a "true halo effect" for vertically integrated utilities. They argue higher power prices benefit businesses that combine generation and retail or trading, increase the attractiveness of fixed-cost renewable generation and strengthen the case for investment in indigenous European energy sources. The note highlights that 2028 TTF forwards are now around 28% above pre-war levels and suggests the disruption "looks unlikely to fully disappear in the foreseeable future."
The analysts write that the current environment "makes the sector look relatively attractive as a defensive option with resilient long term growth vs stagflation risks, with defensiveness against AI disruption coming as the icing on the cake." They add that they continue to "favour above-average growth stocks at reasonable valuation."
At the stock level, RWE and SSE remain JPMorgan's top picks. Both are rated Overweight and have been included on the bank's Analyst Focus List. RWE carries a price target of 65 and SSE a price target of 2,925, each implying roughly 13% upside from current levels.
On RWE, the analysts say the company's mix of generation and trading activities positions it well to benefit from the present market backdrop. They expect growth in renewables and flexible generation capacity to underpin a 12% EPS compound annual growth rate through 2031.
With SSE, JPMorgan highlights investments in electricity networks as a key support for the earnings growth trajectory. The bank expects the quality of earnings to improve over time, which could lead to a re-rating of the multiple attached to the stock.
"We see upside risk to our estimates from the current commodity backdrop," the analysts noted, pointing to the potential for further positive surprises if commodity prices remain elevated.
The most notable rating change in the note is the upgrade of Engie from Neutral to Overweight, alongside a new price target of 31.50. JPMorgan describes Engie as "the stock that has seen the biggest change in its equity story in the last 6 weeks."
The bank highlights Engie's acquisition of U.K. Power Networks as a structural inflection point for the group. According to the note, the deal reduces merger and acquisition risk, improves earnings predictability and accelerates Engie's transition toward a pure utility model. JPMorgan said its estimates through 2028 are conservative and that commodity tailwinds are not yet fully incorporated into its numbers.
Centrica is also listed among the bank's key Overweight ideas. JPMorgan points to the company's diversified exposure across nuclear, exploration and production (E&P), energy retail and gas storage as positioning it well in the current market environment.
On the other side of the ledger, JPMorgan retained its Underweight rating on Fortum with a price target of 17.20. The bank contends that improving Nordic power market fundamentals have already been reflected in Fortum's share price.
JPMorgan identifies a spike in bond yields as the primary downside risk for the sector. It warns that an inflation-driven increase in interest rates could compress valuations, particularly for assets whose regulatory frameworks lack inflation pass-through mechanisms.
Separately, the research note references a product called ProPicks AI that evaluates ENGIE alongside thousands of other companies using more than 100 financial metrics. The description says the AI assesses fundamentals, momentum and valuation to identify stocks that offer the best risk-reward based on current data. The note cites prior notable winners allegedly identified by the AI, including Super Micro Computer (+185%) and AppLovin (+157%), and invites readers to check whether ENGIE is currently featured in any ProPicks AI strategies or if alternative opportunities exist in the same sector.
Overall, JPMorgan's updated stance reflects a view that supply-side disruptions to LNG and higher forward TTF prices materially alter the earnings outlook for many utilities. The bank's positioning - overweight on RWE, SSE, Engie and Centrica and underweight on Fortum - encapsulates a preference for vertically integrated or diversified operators that can capture commodity-driven upside while managing regulatory and execution risks.