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Orsted, Iberdola Among Renewable-Energy Picks at Morgan Stanley

Europe's renewable-energy stocks will benefit from this year's surge in natural gas prices, Morgan Stanley said.
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Morgan Stanley has identified five European renewable-energy stock that it expects to benefit from the surge in natural gas prices, which have more than tripled in the past eight months.

The bank cited:

- Danish wind-energy company Orsted DNNGY; 

- Spanish utility company Iberdola IBDRY, also a big wind producer;

- Germany’s RWE RWEOY, one of Europe’s biggest renewable-energy companies; 

- Électricité de France ECIFY, a major nuclear-energy producer, and,

- France’s Engie ENGIY, which also has a major renewable-energy presence.

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Morgan Stanley rates all five companies overweight.

“We see RWE, EDF and Engie as our preferred names to play the strength in power prices, with limited contagion risk from political intervention,” Morgan Stanley analysts said, according to CNBC.

Meanwhile, “Buy Orsted and Iberdrola on weakness,” they said. 

“We recognize that the recent gas clawback will have a negative impact on 2021 and 2022 earnings for Iberdrola, … triggering earnings-per-share downgrades. However, this appears well priced in with Iberdrola’s market cap.”

Last week, ExxonMobil (XOM), Occidental Petroleum (OXY) and Baker Hughes (BKR) made a Goldman Sachs list of energy stocks that generated negative total returns over the past five years but now appear to be set to rebound.

In the case of Exxon, a “meaningful turnaround is underway,” wrote Goldman analysts led by Neil Mehta.

“The company has reduced costs, surprised to the downside on capital spending, outperformed our expectations in downstream/chemicals and developed an outstanding resource in Guyana,” they said.

As for Occidental, “at current favorable commodity prices, ... we see potential for shares to improve through balance sheet improvement,” Goldman analysts said.