Overview of Goldman Sachs' Upgrade#
Goldman Sachs has recently improved its outlook on European utility stocks, attributing this change to a growing "earnings super-cycle." This cycle is driven by advancements in artificial intelligence (AI), increasing electrification, and the need for energy security. The firm has raised its power demand growth forecasts to between 1.5% and 2% annually through 2028, alongside increasing target valuations to approximately 16 times earnings per share (P/E).
Key Stocks Recommended#
RWE: A Leading Integrated Utility#
RWE has emerged as Goldman Sachs' top choice among integrated utilities, receiving a "buy" rating with a price target raised to €63.50. The German company is expected to benefit from improving profit margins in its flexible generation (FlexGen) segment and a robust pipeline of renewable energy projects. Earnings per share (EPS) are anticipated to grow steadily through 2030, positioning RWE well to meet the rising demand for energy security and power from data centers across Europe.
Solaria: A Top Renewable Play#
Solaria is highlighted as Goldman’s strongest renewable energy stock, also carrying a "buy" rating with a revised price target of €25.50. The Spanish solar developer is projected to have the highest EPS growth rate in Goldman’s coverage, with an impressive 38% compound annual growth rate (CAGR) through 2030. This growth is fueled by rapid capacity expansion and additional revenue from battery storage. Despite its growth potential, Solaria is currently the most affordable stock in its peer group based on 2030 P/E ratios, at just 8 times.
Enel and PPC: Diverse Opportunities#
Enel is recognized for its broad exposure to Europe’s electrification efforts, maintaining a "buy" rating and a price target of €12. The Italian utility’s diverse operations across renewables and networks provide stability, with a projected 9% average EPS CAGR.
Public Power Corporation (PPC) is Goldman’s preferred choice for merchant power exposure, showing significant earnings sensitivity to rising power prices. With a "buy" rating, PPC is expected to benefit from both immediate price spikes and Greece’s long-term electrification goals.
Naturgy and Engie: Defensive and Diversified Picks#
Naturgy is viewed as a more defensive option, with an upgraded price target of €30.50 and a "buy" rating. The Spanish gas and power company is expected to deliver steady earnings growth while trading at a discount to its peers. Lastly, Engie is Goldman’s preferred large-cap diversified utility, with a "buy" rating and a price target of €32.10, benefiting from its flexible generation and renewable energy exposure across Europe.