BofA Upgrades Enagas to Neutral Following Stock Underperformance Against Sector and Peers

Analysts at BofA Securities recently upgraded Enagas S.A., changing their rating from “underperform” to “neutral.” This decision follows the stock’s underperformance compared to its Spanish competitor, Red Eléctrica, and the sector overall, lagging by 900 to 1,250 basis points during the third quarter.

The analysts highlighted several reasons for this upgrade, particularly the recent €1.1 billion sale of Tallgrass Energy, which is expected to enhance Enagas’ balance sheet and improve its earnings outlook.

While the sale bolsters Enagas’ financial position, the upgrade comes with caution. BofA pointed out ongoing risks, such as the arbitration concerning the Gasoducto Sur Peruano project, which poses a significant challenge for the company.

Additionally, uncertainty surrounds Enagas’ ambitious plans for Green Hydrogen infrastructure, creating skepticism about its ability to successfully transition into this emerging market. The Green Hydrogen sector is still developing, and analysts refrained from including it in their valuation due to uncertainties regarding costs, timelines, and potential subsidies.

BofA has raised its price target for Enagas from €14.1 to €14.8 per share, indicating a 7% upside potential. This adjustment is based on a sum-of-the-parts valuation and reflects a more optimistic outlook on Spanish regulatory returns, which are anticipated to improve by year-end.

Despite these positive developments, BofA warned that future investments by Enagas in hydrogen projects might lead to a focus on capital expenditures at the expense of dividend payouts beyond 2026.