National Grid (LSE:NG.) Could Be 5% Undervalued On Stronger Earnings And Higher Investment Plans

National Grid (LSE:NG.) has just paired stronger half year earnings with a higher capital investment plan. This combination puts the latest interim dividend proposal into sharper focus for income focused investors.

The recent earnings beat and the raised capital plan appear to be reflected in the share price. National Grid’s £12.555 quote is associated with a 9.46% one-month share price return and an 8.47% gain year to date.

Scan beyond National Grid and see how other regulated utilities are priced and growing using our hand picked 42 power grid technology and infrastructure stocks as a starting point for comparison.

After a sharp move in National Grid over the past month, the debate now shifts. Is the recent jump just the start of a repricing, or has most of the upside already been taken?

Most Popular Narrative: 5% Undervalued

Set against National Grid’s last close at £12.56, the analyst consensus Narrative on Simply Wall St anchors fair value at about £13.18. That view is built from detailed earnings, revenue and risk assumptions rather than a single opinion.

National Grid now plans to invest at least £70bn over the five years to FY31, compared with the earlier plan for around £60bn. This supports around 10% annual asset growth and is guided to support 8 to 10% underlying EPS CAGR and dividend growth in line with UK CPIH, so the larger capital plan remains a key potential driver of future revenue and earnings.

See why 150 investors see National Grid as 5% undervalued.

Result: Fair Value of £13.18 (UNDERVALUED)

Still, the bullish National Grid story leans heavily on regulators allowing timely recovery of that £70b plus spend, and on customer bill pressure not forcing tighter returns.

Find out about the key risks to this National Grid narrative.

Another View: What Multiples Say About National Grid

The first fair value anchor for National Grid came from analyst targets and narrative assumptions. Snap to the P/E ratio and a different picture appears. The stock trades on 15.9x earnings, a touch richer than close peers at 15x, yet below the global integrated utilities average of 17.7x and under its own fair ratio of 18.8x. That mix points to some valuation cushion on long term fundamentals, but also a shorter leash if sentiment or regulation shifts faster than earnings.

Numbers like these can help investors stay disciplined. See what the numbers say about this price — find out in our valuation breakdown.

Next Steps

If the mixed signals on National Grid have you torn, treat that as a prompt to move quickly, scrutinise the numbers, and decide where you stand. To weigh both sides in one place, start with the 3 key rewards and 2 important warning signs.

Looking for more investment ideas beyond National Grid?

If National Grid has sharpened your thinking, do not stop there. Broaden your watchlist with fresh ideas built from clear numbers and consistent methodology.

• Spot potential mispricings early by scanning companies that combine solid fundamentals with attractive valuations using the 16 high quality undervalued stocks.
• Strengthen the defensive side of your portfolio by focusing on businesses with resilient balance sheets through the list of solid balance sheet and fundamentals (9 results).
• Hunt for lesser known opportunities with strong underlying metrics by checking the 5 high quality undiscovered gems.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com