Deutsche Bank downgraded Spanish gas operator Enagas to sell from hold, slashing its target price to €12 from €12.80. The broker cited limited upside and potential disappointment from an ongoing regulatory review. It also cut Italian utility Italgas to hold from buy after its shares doubled, though it raised its target slightly to €10.30.

The moves come after European utilities posted their strongest relative performance since 2007 last year. Deutsche Bank noted the sector now trades at a forward P/E of 13.5x, a 4% discount to historical norms. While earnings growth is accelerating to about 7% annually, the recent rally has compressed valuations and narrowed the margin for further gains across the group.

Deutsche Bank maintained a positive sector outlook for 2026, keeping buy ratings on firms like Engie and Iberdrola. It warned that expectations for near-term demand growth may be overstated, with affordability becoming a key theme. Investors will watch how regulatory headwinds and valuation pressures balance against underlying earnings momentum in the months ahead.