United Utilities Shares (UU) Breaks Resistance: Can the Rally Hold?

United Utilities shares(LON:UU) are experiencing a bullish wave, breaking above a key resistance level in today's session, eyeing a move higher. The question now facing markets is whether this upward momentum can be sustained. The share price is currently trading at 1,235p, up 0.78% today and 4.84% in the last five days.

The surge in United Utilities' share price is primarily attributed to its robust half-year financial results for the 2025/26 fiscal year. Operating profit witnessed a substantial 67% year-on-year increase, reaching £562 million, surpassing consensus estimates by 6%. Revenue also demonstrated solid growth, climbing 21% to £1.31 billion, aligning with market expectations.

Profit before tax more than doubled to £361 million, benefiting from a significant 30% reduction in finance costs. Earnings per share (EPS) stood at 52.8p, exceeding analysts’ forecasts. The company has also demonstrated its commitment to shareholders by increasing its interim dividend by 3.5% to 17.88p, in line with its policy of CPIH inflation-linked growth. United Utilities has reaffirmed its full-year guidance, projecting revenue between £2.5 billion and £2.6 billion and introducing an EPS target of approximately 100p for the full year.

Furthermore, positive analyst sentiment has contributed significantly to the stock's upward trajectory. Barclays upgraded United Utilities from “Equal Weight” to “Overweight” in August, setting a price target of 1,535p, implying a potential upside of approximately 35%. Barclays cited improved prospects for the water sector and highlighted the company's attractive valuation, anticipating an internal rate of return of around 11.5% through to 2030.

Citigroup reiterated its “Buy” recommendation in November, raising the price target from 1,261p to 1,327p, suggesting a potential upside of 10.54%. Similarly, Morgan Stanley adjusted its price target upwards to 1,475p from 1,310p, maintaining an “Overweight” rating, reflecting growing market optimism.

Price Targets

Adding another layer of confidence, recent insider buying activity suggests that those within the company are optimistic about its future. Director Phil Aspin purchased 15 shares at 1,211p per share on November 11, following similar small purchases in October and September. While the volume is relatively small, consistent insider buying can signal positive internal sentiment.

Despite these positive indicators, United Utilities faces notable challenges. The company has faced criticism regarding sewage discharges into rivers and lakes, particularly Windermere. These environmental concerns have led to increased regulatory scrutiny and potential legal challenges, which could negatively impact the company's reputation and financial stability. Balancing financial performance with environmental responsibility will be crucial for the company's long-term sustainability.

Looking ahead, the markets will be closely watching how United Utilities navigates these environmental challenges while maintaining its strong financial performance and dividend policy. The analyst upgrades and insider buying provide a bullish backdrop, but the potential risks associated with regulatory scrutiny and environmental concerns cannot be ignored. The ability of United Utilities to address these issues effectively will ultimately determine whether the current rally can be sustained, or whether it will face headwinds in the near future.