Morgan Stanley upgraded Iberdrola's share rating — the bank expects accelerated profit growth through 2030

Shares of Spanish energy company Iberdrola rose slightly on Monday after Morgan Stanley upgraded the company's investment rating from "Equal-weight" to "Overweight." According to the bank's assessment, accelerating profit growth in the coming years is prompting analysts to revise their financial forecasts.

Morgan Stanley raised Iberdrola's share price target from €22.50 to €26. The new target exceeds the €22.65 market price cited in the bank's report by 14.79%. An "Overweight" rating means the bank expects the company's shares to outperform the average return of the sector it covers over the next 12-18 months.

Pace of profit growth to accelerate

According to Morgan Stanley, Iberdrola indicated in September that it plans to increase its average annual earnings per share (EPS) growth rate from 8% to 10%. Since then, the company's shares have outperformed the utilities sector benchmark.

The bank believes this accelerating growth will lead analysts to improve their forecasts. Morgan Stanley's own estimates exceed market consensus by 6% for 2027 and by approximately 10% for 2028-2030.

For 2030, the bank forecasts Iberdrola's net profit at approximately €10 billion, about 9% higher than the analyst average expectation of €9.2 billion.

UK infrastructure as the main growth driver

According to Morgan Stanley's assessment, the company's main growth driver will be its network business in the UK. The bank forecasts average annual EBITDA growth of 13% in this segment between 2026 and 2030. This expectation is based on an investment plan of approximately €18 billion.

The second major source of growth will be the US network business, whose EBITDA is expected to grow by approximately 12% annually over the same period.

High valuation and potential risks

Iberdrola shares are trading at 20 times expected 2027 earnings, 37% above the average for other companies in the sector. Despite the high valuation, Morgan Stanley believes this premium may be sustained, as investor interest in large-cap companies is likely to remain strong.

According to the bank, Iberdrola accounts for approximately 21% of the European utilities SX6P index and could benefit from growing investment flows into the sector. Under Morgan Stanley's bullish scenario, the share price could reach €29, while under a bearish scenario it could fall to €19.

In the same report, Morgan Stanley named National Grid its top pick among large utility companies, while cutting E.ON's rating to "Equal-weight." In a comparative ranking of six major companies, Iberdrola ranks fourth, ahead of E.ON and Enel.

Despite the positive long-term outlook, the bank also notes short-term risks. Iberdrola's share price is near its historical high, meaning that a pullback cannot be ruled out if market conditions improve and investor interest in defensive stocks declines. Another factor cited is reports of a possible retirement by the company's chief financial officer, though Morgan Stanley does not expect a management change in the near future.