Goldman Sachs Names Top Utility Stocks Ahead of Earnings Season: RWE, Naturgy, Enel and EDP in Focus
European utility stocks are heading into a closely watched earnings season, and Goldman Sachs has identified RWE, Naturgy, Enel and EDP as companies that could potentially deliver stronger-than-expected results. The investment bank sees trading activity, flexible power generation and pumped-storage hydroelectric operations as important earnings drivers, supported by commodity-price volatility, elevated prices and resilient electricity demand. (Investing.com)
The call comes at an important time for European power companies. Utilities are benefiting from changing electricity demand patterns, volatile energy markets and the growing need for flexible generation. At the same time, investors are paying close attention to interest rates, capital spending and the ability of companies to convert higher power-market opportunities into sustainable earnings.
For investors, Goldman Sachs' view is particularly relevant because the upcoming results could show whether recent market conditions are translating into earnings growth or whether some of the optimism has already been priced into utility valuations.
Which Utility Stocks Goldman Sachs Favors
Goldman Sachs' preferred names ahead of the earnings season include RWE, Naturgy Energy Group, Enel and Energias de Portugal (EDP).
The bank expects all four companies to have a reasonable chance of exceeding their existing full-year guidance or consensus expectations, although the reasons differ from one company to another. (Investing.com)
The common theme is the value of flexibility.
Flexible power generation allows utilities to adjust electricity production depending on market conditions. When power prices are volatile, companies with flexible generation assets can potentially capture better margins by producing more when prices are attractive.
Trading operations can provide another source of earnings, while pumped-storage hydro can help utilities manage fluctuations in electricity supply and demand.
RWE: Flexible Generation and Trading in Focus
German utility RWE is one of Goldman Sachs' key picks.
The bank estimates that RWE could report nine-month net profit of €1.6 billion to €1.7 billion, equivalent to roughly 75% of the €2.25 billion full-year Bloomberg consensus estimate cited in the report.
Goldman Sachs believes RWE's flexible generation and trading businesses could provide upside to expectations. The company is scheduled to report its results on November 11. (Investing.com)
For investors, the significance goes beyond one quarterly number. RWE has exposure to several areas of Europe's evolving energy system, including renewable generation and assets that can respond more quickly to changes in electricity-market conditions.
The key question will be whether strong trading and flexible-generation performance can offset pressure elsewhere in the business and support the company's broader earnings outlook.
Naturgy Could Be Ahead of Its Full-Year Target
Spain's Naturgy Energy Group is another company Goldman Sachs expects to perform well.
The bank estimates nine-month EBITDA at €4.3 billion to €4.4 billion, with net profit around €1.75 billion. Goldman believes Naturgy could potentially exceed its full-year bottom-line guidance of more than €2.1 billion, assuming a normal fourth quarter. (Investing.com)
That would mean the company could already have achieved roughly 80% to 85% of its full-year profit guidance after nine months.
Goldman Sachs points to solid gas prices and flexible generation as important contributors.
For investors, the fourth quarter will therefore matter less as a standalone period and more as a test of whether Naturgy can finish the year above its existing expectations without relying on unusually favourable market conditions.
Enel: Strong Power Demand Supports the Outlook
Italian utility giant Enel is also on Goldman's list.
Goldman Sachs estimates nine-month EBITDA at approximately €17.8 billion and net profit at €5.7 billion to €5.8 billion. The bank expects these figures to represent more than three-quarters of its full-year net-profit projection of €7.47 billion. (Investing.com)
The investment bank expects Italy's flexible generation and trading activities to accelerate, while electricity consumption in Italy and Spain could provide additional support.
Enel is scheduled to report on November 12.
The company is particularly interesting from a structural perspective because Europe's energy transition requires utilities to balance renewable generation with dependable and flexible electricity supply. That can create opportunities for companies with diversified generation portfolios and strong networks.
However, Goldman Sachs also flagged uncertainty around potential additional restructuring charges in the fourth quarter. Such provisions could reduce the size of any near-term earnings beat even if they are intended to produce cost savings later. (Investing.com)
EDP May Have More Room Above Guidance
Portugal's Energias de Portugal, or EDP, is another utility where Goldman Sachs sees upside risk to management's full-year guidance.
Goldman estimates third-quarter EBITDA at nearly €1.2 billion, which would put nine-month EBITDA at around €3.9 billion.
The bank expects strong contributions from pumped-storage hydro and flexible generation. It also estimates that asset-rotation gains of €200 million to €250 million could be generated during the remainder of the year. Based on those assumptions, EDP's full-year EBITDA guidance of €5.3 billion could prove conservative. (Investing.com)
EDP is scheduled to report on November 6, making it the earliest of the four companies to release results.
Why Flexible Power Generation Matters
One of the most important ideas behind Goldman Sachs' utility outlook is flexible generation.
Electricity demand and supply do not always move together. Renewable sources such as wind and solar can produce large amounts of power when conditions are favourable, but output can fluctuate.
Flexible generation and energy storage can help fill the gap.
Pumped-storage hydroelectric facilities are one example. Water is pumped to a higher reservoir when electricity is available and relatively cheap, then released through turbines when demand and prices are higher.
This flexibility can become particularly valuable when commodity prices and electricity markets are volatile.
For utilities, therefore, volatility is not necessarily only a risk. Companies with the right assets and trading capabilities can sometimes turn volatility into an earnings opportunity.
The Restructuring Risk Investors Should Not Ignore
Goldman Sachs' bullish view comes with an important qualification.
The bank expects some companies could record restructuring provisions in the fourth quarter as they pursue future cost savings. These charges could limit potential earnings beats during 2026, even if the restructuring ultimately improves profitability in 2027 and 2028. (Investing.com)
This distinction is important for investors.
A restructuring charge can make reported earnings look weaker in the short term even when management expects the underlying cost structure to improve later. Investors therefore need to distinguish between a deterioration in the core business and a one-time or front-loaded cost associated with improving efficiency.
What Could Move Utility Stocks After Earnings?
The actual earnings numbers will be only one part of the market reaction.
Investors will also focus on full-year guidance, power prices, generation margins, trading performance, capital expenditure and management commentary.
A company can report strong earnings and still see its stock decline if expectations were even higher.
Conversely, a modest earnings beat accompanied by a stronger outlook can produce a more positive market reaction.
That is why Goldman Sachs' estimates are useful as a benchmark rather than a guarantee. The market will ultimately judge each company against expectations already embedded in its share price.
What Investors Should Watch
As the European utility earnings season approaches, investors should monitor:
RWE: flexible generation, trading income and November 11 results
Naturgy: progress toward its €2.1 billion-plus profit target
Enel: Italian and Spanish electricity demand, trading and restructuring costs
EDP: pumped-storage generation, asset sales and the €5.3 billion EBITDA target
European power and gas prices
Commodity-market volatility
Interest rates and financing costs
Capital expenditure required for the energy transition
Management guidance for 2027
The broader question is whether the current energy-market environment is producing temporary earnings gains or creating a more durable improvement in utility profitability.
Why This Matters for Investors
European utilities are increasingly becoming more than traditional defensive dividend stocks.
The combination of renewable energy investment, electricity-demand growth, grid expansion, energy storage and flexible generation is changing the sector's earnings profile. The companies best positioned to manage volatility and balance intermittent renewable supply with dependable power could have a structural advantage.
At the same time, utilities remain capital-intensive businesses. Higher borrowing costs, large investment programmes and regulatory changes can quickly affect returns.
That makes earnings quality particularly important.
Bottom Line
Goldman Sachs expects RWE, Naturgy, Enel and EDP to be among the European utility companies capable of delivering strong upcoming results, with flexible generation, trading and pumped-storage hydro among the main potential drivers. (Investing.com)
The opportunity is significant, but investors should look beyond headline profit numbers. The more important signals will be guidance, cash generation, capital spending, restructuring costs and management's expectations for the next year.
For global-market investors, the upcoming utility results could provide a useful test of whether Europe's changing power system is translating into sustainable earnings growth.
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Disclaimer: This article is for informational and educational purposes only and should not be considered investment advice.