Europe’s
utilities
sector
may
have
come
under
pressure
over
the
past
three
years,
but
Goldman
Sachs
says
a
shift
is
underway,
naming
stocks
to
play
the
industry
in
2024.
In
a
Jan.
8
note,
the
investment
bank
highlighted
that
utilities
have
lagged
the
wider
European
market
by
almost
20%,
in
large
part
thanks
to
the
“steep
increase
in
interest
rates,
which
led
to
a
significant
de-rating
in
capital
intensive
activities
(e.g.
renewables,
power
grids),
and
by
regulatory
intervention
during
the
Energy
Crisis.”
The
region
experienced
soaring
energy
costs
after
cutting
off
Russian
supplies
following
the
country’s
invasion
of
Ukraine
in
February
2022.
But
things
are
looking
up
for
Europe’s
utilities
sector,
according
to
Goldman
Sachs’
analysts
led
by
Alberto
Gandolfi.
“We
believe
that
the
improved
outlook
on
inflation
and
interest
rates
is
likely
to
favor
capital
intensive/long
duration
assets,
such
as
Renewable
Energy
(where
the
capital
cycle
also
appears
to
have
positively
inflected,
as
evidenced
by
rising
returns)
and
Power
Grids
(where
the
market
appears
to
be
overlooking
the
incremental
organic
growth
opportunities),”
they
wrote.
U.S.
Federal
Reserve
officials
concluded
in
December
that
interest
rate
cuts
are
likely
this
year,
but
meeting
minutes
released
by
the
central
bank
on
Jan.
3
did
not
specify
when.
However,
Goldman’s
analysts
pointed
out
that
“only
big
upward
moves
in
rates
are
highly
correlated
with
sector
underperformance.”
Against
this
backdrop,
they
like
stocks
with
“transformational
stories,”
that
have
either
a
“re-rating
in
their
capital-intensive
business,
inflecting
returns,
accelerating
grids
investments,
or
strongly
positive
earnings
revisions.”
Stock
picks
German
energy
company
RWE
is
among
the
stocks
highlighted
by
Goldman,
which
said
it
continues
to
value
its
renewables
business.
Goldman
has
a
buy
rating
on
the
stock,
which
is
also
on
its
conviction
list
of
top
picks.
Its
price
target
of
53.5
euros
($58.80)
gives
it
around
31%
upside
potential.
Italian
electricity
and
gas
distributor
Enel
is
another
Goldman
favorite.
The
bank
revised
its
price target
on
the
company
upward
from
8.79
euros
to
8.80
euros
“on
higher
expected
earning
for
Italian
Hydro
and
a
higher
multiple
for
network
activities.”
The
new
target
gives
it
around
30%
potential
upside.
Another
company
that
is
buy-rated
by
Goldman
includes
Spanish
solar
panel
producer
Solaria
.
The
bank
has
a
price
target
of
22
euros
on
the
company,
giving
it
just
over
33%
potential
upside.
—
CNBC’s
Michael
Bloom
contributed
to
this
report.
