UBS upgrades E.ON to Buy, raises target price on grid expansion upside

E.ON SE, Germany’s major energy company, offers a superior investment opportunity driven by the expansion of its electricity distribution networks, according to a UBS Global Research report published Monday, which lifted its rating on the stock to “Buy” from “Neutral.”

The Wall Street brokerage raised its 12-month price target on E.ON to €20.00 from €19.50, citing recent share-price underperformance that it sees as an attractive entrance point. UBS also argued that financial markets have placed excessive weight on draft regulatory proposals for gas returns while neglecting E.ON’s core growth driver in power infrastructure.

Electricity grids drive expansion

Market attention has recently centred on draft Weighted Average Cost of Capital (WACC) proposals for German gas networks. However, UBS analysts stressed that power distribution networks are projected to account for roughly 93% of E.ON’s German regulated asset base (RAB) by 2030.

UBS forecasts that the allowed pre-tax return for electricity networks will be 115 to 160 basis points above the proposed gas return, helped by a more favourable methodology for risk-free rates and possible upside from beta assumptions.

“In our view, Germany needs to strike a balance of affordable allowed WACC with the investment incentives required to deliver its grid expansion,” UBS analysts noted, adding that E.ON has a strong operational record of outperforming regulatory baseline returns through efficiency gains.

The bank projects that E.ON will deliver approximately 7% annual compound growth in adjusted EBITDA and earnings per share (EPS) over the 2025–2030 period.

Upside to investment pipeline

E.ON has identified €5 billion to €10 billion ($5.5 billion to $11 billion) in financial headroom, and UBS expects the company to channel that firepower directly into its domestic power grid.

UBS estimates that E.ON’s annual capital expenditure in German networks could rise to €7.3 billion by 2029, significantly exceeding the roughly €6 billion implied by the company’s current baseline plan.

The next key regulatory milestones in Germany include the final gas WACC determination, expected by the end of 2026, followed by the draft WACC proposal for power distribution in the third quarter of 2027.

Peer recommendations & stock mentions

Within the European regulated utilities space, UBS adjusted its sector preferences, ranking E.ON among its top picks alongside Elia Group SA (rated Buy, price target €144) and Italgas SpA (rated Buy, price target €11).

By contrast, National Grid PLC remains UBS’s least preferred name (rated Sell, price target 1,150p) due to stock-specific execution risks surrounding its UK capital expenditure delivery. Among German peers, UBS reaffirmed its preference for renewables generator RWE AG (rated Buy, price target €68) ahead of upcoming gas turbine auction catalysts.