With energy security regaining prominence on European policy agendas and volatility pushing some investors toward defensive sectors, Morgan Stanley has singled out three utilities that it believes are well positioned to deliver resilient returns through 2026: National Grid plc, ENGIE and RWE AG.
Why these picks
The brokerage frames its selections around three consistent themes: earnings resilience anchored in regulated assets, clear near- to medium-term capital expenditure trajectories, and meaningful exposure to structural drivers in power prices. Together, these attributes form the basis for Morgan Stanley's constructive view on the trio.
National Grid plc
Morgan Stanley describes National Grid as a core defensive compounder rooted in regulated electricity transmission and distribution. The firm emphasizes that the bulk of National Grid's earnings are sourced from rate-base assets in the UK and the US, which provide inflation-linked revenue streams and predictable cash flow profiles. Those characteristics, the broker says, underpin a visible path to mid-single-digit EPS growth as grid investment accelerates.
As electrification of transport, heating and industry advances across Europe, Morgan Stanley highlights grid reinforcement as mission-critical infrastructure. The expanding regulated asset base and constructive regulatory frameworks are cited as providing earnings visibility, while the company's dividend profile is noted as reinforcing its role as a portfolio ballast during periods of macro uncertainty.
ENGIE
ENGIE is portrayed as a hybrid utility, combining a regulated networks backbone with flexible generation and renewable assets. Morgan Stanley sees scope for earnings upgrades driven by resilient power prices and improving operational execution. The brokerage points to ENGIE's disciplined capital allocation, balance sheet repair and strategic shift toward contracted renewables as factors that improve earnings quality relative to prior cycles.
In an environment of higher gas and power price volatility, Morgan Stanley argues ENGIE's integrated supply and generation mix provides both defensive points of stability and upside optionality. The stock is also described as attractively valued relative to its medium-term growth trajectory.
RWE AG
RWE is presented as the sector's preferred exposure to a recovery in renewables and merchant power markets. The German utility combines one of Europe's largest renewables development pipelines with exposure to infra-margin generation that can benefit from elevated power prices. Morgan Stanley views RWE as offering asymmetric upside: current depressed multiples reflect past power price normalization, and the firm notes that incremental EPS upgrades could follow if higher gas prices provide support to wholesale markets.
RWE's scale in offshore wind, solar and battery storage is highlighted as giving the company leverage to Europe’s energy security and decarbonization agenda, which Morgan Stanley sees as underpinning long-duration growth optionality.
Bottom line
Morgan Stanley's selections emphasize a blend of regulated cashflow durability, growth from grid and renewables investment, and exposure to power market dynamics. National Grid is framed as a defensive compounder with inflation-linked earnings and dividend support; ENGIE is valued for its integrated portfolio and execution levers; and RWE is characterized as a renewables-scale play with asymmetric upside tied to wholesale price movements.