Morgan Stanley has reduced its recommendation on Redeia, moving the stock from an "overweight" stance to "equal-weight" and trimming its 12-month price target from €18 to €15. The downgrade follows a detailed reassessment of Redeia's new strategic plan to 2029, which the bank says indicates regulatory asset base (RAB) and net income paths that fall short of its prior expectations.
In a note accompanying the downgrade, Morgan Stanley lowered its net income projections by an average of 5% across the 2026-2029 period. The brokerage's analysts highlighted that, after adjusting for hybrid issuances, Redeia shows effectively no EPS growth through 2028.
Specifically, Morgan Stanley's ModelWare EPS - which excludes hybrid coupon payments - is forecast to decline marginally from €0.89 in 2025 to €0.86 in 2027 before returning to €0.89 in 2028. At the same time, hybrid interest outlays are expected to climb from €35 million in 2026 to €81 million in 2028, which will weigh on post-hybrid reported earnings. On a reported basis, EPS is seen edging up only slightly from €0.94 in 2025 to €1.04 in 2028.
The bank said the share price implies a total shareholder return of roughly 5.5% over 2025-2028, a projection it described as markedly below the roughly 12% return it expects from regulated peers. That weaker return outlook was among the drivers behind the recommendation change and the narrower price target.
Morgan Stanley also adjusted valuation and balance-sheet assumptions in its downgrade. The Spanish transmission weighted average cost of capital (WACC) assumption was increased from 4.9% to 5.2% following higher Spanish bond yields, and the brokerage raised its estimate of 2029 net financial debt by 15%.
On underlying operating metrics, Morgan Stanley models Redeia's EBITDA, on the company's definition, at €1.28 billion in 2026 rising to €1.47 billion in 2028. Total capital expenditures are estimated at €1.70 billion in 2026, while net RAB plus work-in-progress is forecast to grow from €11.22 billion in 2026 to €13.31 billion in 2028. Dividend yield is projected at 5.5% in 2026 and edging to 5.7% in 2028, with dividends per share of €0.82 and €0.85 in those years respectively.
Even after these inputs, Morgan Stanley said it found it difficult to "justify meaningful upside to the current P/BV of 1.6x on the basis of the current ROE/COE ratio of 1.25-1.35x." The brokerage therefore placed Redeia in its lowest-ranked quintile on its three-month alpha model, assigning a score of 5 out of 5, the least-favoured rating under that framework.
In repositioning across the regulated utilities space, the note identified National Grid as its top pick among regulated utilities, alongside Elia, E.ON and Pennon. According to Morgan Stanley, these names generally offer stronger EPS growth with lower 2027 EV/EBITDA multiples than Redeia, with the exception of Elia.
The bank flagged two potential catalysts that could alter the outlook for Redeia: a report from Spain's CNMC on fines related to the 2025 Iberian power blackout, for which timing is unconfirmed, and the Spanish national transmission investment plan expected in the second half of 2026.
Additional detail from the research note touched on balance-sheet dynamics. Hybrid interest payments rising from €35 million to €81 million across 2026-2028 were cited as a specific drag on post-hybrid EPS, while the 15% increase in the 2029 net financial debt estimate fed into the lower price target.
InvestingPro is promoted in the original note as a source for tracking intra-day stock moves and analyst updates, with a stated 50% off offer. The note also referenced ProPicks AI, an AI-based selection tool that evaluates companies on 100+ financial metrics; the text noted the tool has identified past winners such as Super Micro Computer (+185%) and AppLovin (+157%), and suggested users could check whether Redeia (REDE) appears in any ProPicks strategies.
Bottom line - Morgan Stanley's downgrade and lower price target reflect a combination of a weaker-than-expected strategic plan trajectory for RAB and net income, rising hybrid interest costs and higher financing assumptions, leaving Redeia with limited EPS growth to 2028 on a post-hybrid basis and an outlook that the bank views as less attractive than several regulated peers.