Goldman Sachs: Three stocks that will benefit from electrification

Demand for power and data centers has been increasing and several companies in Europe are ready to take advantage of this trend, according to Goldman Sachs.

According to analysts at the investment bank, it is expected that Europe’s electricity demand will increase by as much as 50 percent over the next ten years. This will reverse the decline that has been going on since 2008.

According to an April 29 research report, analysts expect 800 billion euros will be spent on Europe’s power transmission and distribution, thanks in part to years of underinvestment.

“In an industry with high operational and financial risk, such a turnaround in income, which is likely to also trigger organic growth in power grids and renewable energy, should have a significant effect on the companies’ profits,” write the analysts.

Here are three of Goldman Sachs’ stocks with over 30 percent upside potential over the next 12 months.

E.on

Goldman Sachs is bullish on utility company E.on and recently raised its target price to 17 euros. This gives the German share, which is on Goldman’s “conviction list”, a potential upside of around 35 per cent.

The reasons for the buy rating on the stock include Germany’s electrification efforts and retail margins which they say will be well supported by falling energy prices.

Goldman Sachs expects that E.on will deliver “mid-single-digit growth in annual earnings per share, from 2023 to 2028”.

SSE

Scottish energy giant SSE is on Goldman Sachs’ radar following the company’s latest update confirming its story of renewed growth.

“The company has now detailed a capital expansion plan of £20.5 billion for the financial years 2023 to 2027, driven by higher investments in renewable energy and networks,” write the analysts.

“High electricity prices and profits have contributed to the company’s cash flow for investments”, adding that the company’s growth will increase as the project pipeline is expanded.

Goldman Sachs has a price target of 2,024 British pence, which gives it an upside of 42 percent.

Elijah

Belgium’s Elia, a transmission system operator, is also on Goldman Sachs’ list.

The company stands out thanks to its “strong earnings growth potential, as the fastest growing EU utility in our coverage”, write the analysts.

Goldman Sachs has a price target of 135 euros for the share, which gives it an upside of 45 percent.