Deutsche Bank Slashes Enagas to Sell, Taps the Brakes on Italgas After Utility Stocks Soar

Deutsche Bank has shaken up its stance on some major European utility players after the sector's impressive run last year. Enagas (BME: ENG) took a hit, dropping from "hold" to "sell," with its price target slashed to €12 from €12.80. The bank flagged limited growth potential and warned that upcoming regulatory reviews might throw a spanner in the works.

Italgas (BIT: IG) hasn't escaped the re-rating frenzy either. Despite its share price doubling recently, Deutsche Bank dialed back its rating to "hold" from "buy." A slight bump to the target price to €10.30 couldn't mask the diminished upside after the swift jump, and the bank stresses that the adjustment is valuation-driven, not a commentary on the company's fundamentals.

Overall, Deutsche Bank remains optimistic about the utilities sector moving into 2026. It pointed out that European utilities outperformed all other sectors last year-their strongest showing since 2007. Still, the recent surge means there's less runway left for further gains across a chunk of the industry.

On valuation terms, the sector trades at about a 4% discount on next year's price-to-earnings ratio compared to its historical parity. The absolute forward P/E stands around 13.5x, roughly in line with long-term norms, while earnings per share forecasts for the coming two years have bumped up to about 7% annually, up from 4% a year ago.

Deutsche Bank's analysts highlighted that earlier enthusiasm was fueled by expectations of rising network capital expenditures and a surge in power demand from data centres. But they also warned these near-term demand growth expectations might be on the optimistic side. Affordability issues are also creeping into the picture across the sector.

The brokerage didn't just juggle Enagas and Italgas ratings; it also reaffirmed "sell" calls on Red Electrica (BME: REE), Verbund (VIE: VER), and Fortum (HEL: FORTUM), while keeping "buy" recommendations for firms like Engie (EPA: ENGI), E.ON (ETR: EONGY), Iberdrola (BME: IBE), National Grid (LON: NG), RWE (ETR: RWE), and SSE (LON: SSE).

While the bank doesn't see rising risks upending growth in the near term, the stellar performance so far has tightened the corridor for additional upside. In a sector often considered a steady performer, gauging the next move after such a strong rally might be trickier than usual.

As the utilities space digests these re-ratings and keeps an eye on regulatory developments, it's clear the excitement around growth has been tempered by reality-check valuations. Whether this spells more cautious trading or deeper corrections remains to be seen.