Iberdrola Faces Limited Growth Potential, Says Morgan Stanley

Analysts Highlight Valuation Concerns After Strong Performance

Morgan Stanley has downgraded Iberdrola, a leading Spanish utility company specializing in electricity networks and renewable energy, from Overweight to Equal-weight, signaling a shift in its investment outlook for the stock. The bank also lowered its price target from €15.00 to €14.50 per share, citing limited near-term upside potential following a year of impressive gains. This adjustment reflects growing concerns about Iberdrola stock valuation sustainability, as the shares have soared to all-time highs, outpacing the European utilities sector by 17% over the past 12 months. With the stock trading at a 25% premium compared to historical sector averages, analysts argue that Iberdrola investment opportunities may no longer offer the same allure for new investors seeking high returns in the utilities market.

The downgrade stems from a combination of macroeconomic pressures and company-specific challenges. Morgan Stanley pointed to rising bond yields and declining power prices as key factors squeezing Iberdrola stock price growth potential, leading to the revised €14.50 target. This new forecast suggests a modest 3% upside, paired with a 4.8% dividend yield, translating to a total shareholder return of less than 10% for 2025. While this yield remains attractive for income-focused investors, the bank believes the stock has reached a ceiling after its robust rally, leaving little room for further gains in the short term. Analysts emphasized that Iberdrola stock market performance has been exceptional, with a 27% increase over the last year, including a 12% rise in 2024 and an additional 5% year-to-date, pushing its market capitalization to approximately €90 billion, making it the third-largest company on the Ibex index.

Despite the tempered outlook, Morgan Stanley still regards Iberdrola as a cornerstone investment for many portfolios, thanks to its strong fundamentals and strategic focus on renewable energy investment trends. The company generates 65% of its earnings from electricity networks and renewables, a figure projected to climb to 85% by 2030, aligning with global shifts toward decarbonization and electrification. Iberdrola’s ambitious 2024-2026 strategic plan reinforces this trajectory, earmarking €41 billion for investment, with 70% targeting growth in high-quality markets like the United States and the United Kingdom. In 2024 alone, the company reported a 17% surge in net profit to €5.612 billion and a record-breaking €17 billion in investments, up 50% from the prior year, underscoring its position as a leader in the European utilities sector growth analysis.

However, the bank warns that sustaining this momentum could prove challenging. Iberdrola earnings growth forecast for 2024-2030 shows a slower compound annual growth rate of 6%, a notable decline from the robust Spanish liberalized margin expansion seen between 2021 and 2025. This anticipated slowdown, coupled with external pressures like higher bond yields, raises questions about Iberdrola stock future performance. Additionally, a potential management transition looms on the horizon, with the chief financial officer slated to retire in 2026. This leadership change could dampen investor confidence, particularly as the market may hesitate to maintain the current premium valuation without clarity on the succession plan. Such uncertainties add a layer of risk to Iberdrola long-term investment strategies, prompting Morgan Stanley to suggest that other utilities stocks might present better risk-reward profiles at more attractive price points.

For investors, the downgrade does not signal a complete retreat from Iberdrola but rather a recalibration of expectations. The company’s best-in-class capital allocation and focus on renewable energy market expansion continue to make it a reliable choice for those prioritizing stability over aggressive growth. Yet, Morgan Stanley’s analysis underscores a broader shift in the utilities investment landscape, where valuation premiums are increasingly scrutinized amid evolving economic conditions. The bank’s revised stance aligns with a cautious consensus among analysts, with 13 buy, 18 hold, and 2 sell recommendations out of 33 tracked, alongside an average price target of €14.58, slightly above Morgan Stanley’s new mark. This suggests a balanced view: Iberdrola remains a solid holding, but its days of outsized gains may be waning.

Market reaction to the downgrade was swift but measured, with Iberdrola stock price dropping 0.9% in mid-session trading on the announcement day, reflecting sensitivity to analyst sentiment in a sector known for stability rather than volatility. Looking ahead, Iberdrola’s next Capital Markets Day, scheduled for September 24, 2025, will be a pivotal moment for investors seeking updates on its strategic direction and responses to these emerging challenges. For now, Morgan Stanley’s downgrade serves as a reminder that even top-tier utilities like Iberdrola must navigate a complex landscape of macroeconomic trends, internal transitions, and shifting investor priorities, all of which will shape its trajectory in the years to come. Whether the stock can defy expectations and reclaim its upward momentum remains a key question for those tracking European utilities stock market trends.