On Friday, Citi analyst at the financial firm raised the share price target on Iberdrola (BME:IBE) SA (IBE:SM) (OTC: OTC:IBDRY) to €9.60, up from €9.50, while keeping a Sell rating on the stock. The adjustment reflects a nuanced stance on the energy company's market position and perceived challenges.
The analyst pointed out that Iberdrola's stock has traditionally commanded a premium due to its stable earnings growth and high-quality assets. However, Citi does not align with this market sentiment. The firm highlighted several concerns, including operational challenges in the United States that have led to suboptimal returns, particularly as the company increases its capital expenditures.
Additionally, the firm cited Iberdrola's below-average operational Return on Regulated Equity (RoRE) in the United Kingdom. This metric, which is pivotal for assessing financial performance in the energy sector, is believed to be propped up by financing and tax strategies rather than operational excellence.
Citi also expressed reservations about Iberdrola's financial transparency. The firm scrutinized Iberdrola's discretionary accounting practices, variations, and the true nature of its underlying earnings performance, suggesting that these factors contribute to an opaque financial outlook.
Despite the slight increase in the price target, Citi reaffirmed its Sell rating, indicating that it prefers other stocks within the same market for exposure. The firm considers the approximately 60% premium that Iberdrola's shares command over the market-implied Sum of the Parts (SOTP) valuation to be unjustified. This stance suggests that Citi views the stock as overvalued relative to its peers and the broader market.
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