Goldman Sachs on Wednesday moved to a more positive stance on Naturgy Energy Group, raising its recommendation two notches from "sell" to "buy" and increasing its 12-month price target to €30 per share from €26. The bank said the company appeared undervalued on several fronts, including expected earnings, available balance-sheet capacity and an extended valuation discount to peers.
Listed in Madrid, Naturgy closed at €25.62 on Tuesday, a level Goldman’s new target implies would allow roughly 17.1% upside. On Wednesday morning, at 06:20 ET (10:20 GMT), the stock was trading at €26.11, up 1.8% from the prior close.
Goldman noted the stock has lagged the broader European utilities sector, underperforming by 15% since January 1. The bank also flagged the long-term relative performance: since it placed Naturgy on its "sell" list on January 11, 2021 - when shares closed at €20.15 - the stock has risen 27%, compared with a 48.5% gain in the FTSE World Europe index.
Analysts' rationale
Goldman Sachs laid out three principal drivers behind its decision to upgrade. First, the bank projects 2026 net income for Naturgy of nearly €2.1 billion, about €200 million above the company’s own guidance and roughly 6% ahead of Bloomberg’s consensus. Goldman attributes the stronger forecast in part to improved profits from the company’s liquefied natural gas trading activities.
Second, the analysts argue Naturgy has meaningful balance-sheet capacity. They estimate the company could deploy between €6.5 billion and €7.5 billion by allowing net debt to EBITDA to move from about 2.5 times toward a range of 3.5 to 3.75 times, while still preserving a BBB credit rating.
Third, Goldman highlighted the valuation gap to peers. On a 2026 price-to-earnings basis, Naturgy is modelled at approximately 12 times versus a peer average of 17 times, and it yields about 7.0% in dividends versus a 3.9% peer average. The analysts said that discount had widened beyond what they consider justified, and added: "We believe Naturgy may soon return to growth, due to B/S utilization," the analysts said.
In its base case the bank conservatively assumed only about €4 billion of the potential re-leveraging would be used, deploying those proceeds into electricity networks and renewables. Under that scenario, Goldman projects a 2025-30 earnings per share compound annual growth rate of 3%, and a 2030 EPS of €2.38, which the bank notes is roughly 20% above Bloomberg consensus of €1.96.
Valuation and balance-sheet modelling
The new €30 target is the product of a blended valuation. Two-thirds of the target reflects a P/E approach at 14.4 times, producing €30.8 per share, while the remaining third is a sum-of-the-parts valuation that yields €29.1 per share.
Goldman’s sum-of-the-parts places networks at 52% of an enterprise value of €47.77 billion. The bank’s forecast has net debt of €13.45 billion in 2026 rising to €15.58 billion by 2030 as capital expenditure increases from €2.59 billion in 2026 to €3.20 billion in 2030. Free cash flow is modelled to be negative at -€207 million in 2026 before recovering to €1.09 billion in 2027.
Downside scenarios noted
Goldman Sachs also set out four downside risks that could weigh on the thesis: lower commodity and power prices, higher sovereign interest rates, weaker macroeconomic conditions and returns from re-leveraging investments that come in below expectations.
Conflicts and disclosures
The bank disclosed that it has received investment banking fees from Naturgy in the past 12 months and expects to seek further mandates in the next three months.