On Tuesday, Citi analysts upgraded National Grid (LON:NG) stock, listed on both the London Stock Exchange (LON:LSEG) (NG:LN) and the New York Stock Exchange (NYSE: NGG), from Neutral to Buy, adjusting the price target to GBP 10.63, up from the previous GBP 10.50.
Currently trading at $59.53, the stock has received strong backing from analysts, with InvestingPro data showing a highly favorable consensus recommendation of 1.5 out of 5. The upgrade follows a period where the stock experienced underperformance, which was attributed to macroeconomic factors and investment flows.
The analysts at Citi have expressed continued appreciation for National Grid's regulated asset value (RAV) and earnings growth profile, which they believe is supported by investments that have political and regulatory backing. The company's strong fundamentals are reflected in its impressive 29-year track record of consecutive dividend payments, with a current yield of 3.39%.
Despite downgrading the stock to Neutral in the past, they maintained a positive outlook on the company's fundamentals and indicated a willingness to reinvest in the shares if there was an unjustified sell-off.
National Grid's financial health remains a point of confidence for Citi analysts, especially as the company approaches the RIIO-2 price control period. The analysts underscore the robust political and regulatory support that National Grid enjoys, along with a strong balance sheet that positions the company well for the future.
The upgrade is also influenced by external economic factors. Citi's analysis suggests that the strong US dollar, a potential re-rating of US regulated assets, and the anticipation of interest rate cuts in the second half of the year create a favorable investment opportunity for National Grid's stock.
In conclusion, Citi's upgrade reflects a strategic reassessment of National Grid's position in the market, considering both the company's solid fundamentals and favorable macroeconomic conditions that could benefit investors in the near term.
In other recent news, National Grid reported a robust financial performance in its first half-year earnings call. The company's operating profit saw a 15% increase, reaching £2 billion, while capital investments also grew by 19% year-on-year, hitting a record £4.6 billion. These developments are part of National Grid's strategic shift towards becoming a pure play networks business, with a £60 billion investment in networks planned over the next five years. The company also declared an interim dividend of 15.84p per share.
National Grid's investment strategy aims for a group asset growth of around 10% per annum, with an underlying EPS CAGR of 6% to 8% from FY 2025. Major projects are underway in both the UK and US, focusing on supporting the energy transition. However, National Grid Ventures saw an 11% decrease in capital investment to £279 million due to the completion of the Viking Link project.
The company is actively engaging with regulatory bodies to finalize rate settlements and support decarbonization infrastructure. It continues to progress on major UK and US projects, despite concerns raised about the supply of supergrid transformers and potential impact of regulatory changes on earnings.
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