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Goldman Sachs says E.ON stock is poised to unlock higher returns as ROE climbs

EditorEmilio Ghigini
Published 09/16/2024, 05:42 AM
EONGY
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On Monday, Goldman Sachs updated its outlook on E.ON SE (ETR:EONGn) (EOAN:GR) (OTC: EONGY (OTC:EONGY)) stock, increasing the price target to EUR17.50 from the previous EUR17.00. The firm maintained its Conviction Buy rating on the stock. The adjustment reflects a positive view on the company's potential to realize value from future investments.


The investment firm highlighted that the current sentiment on E.ON's return on equity (ROE) for its domestic assets, which stands at approximately 5.5% pre-tax, might be excessively pessimistic.


Goldman Sachs pointed out three key factors that could enhance E.ON's financial performance: higher ROE for new investments, the possibility of an upward revision in ROE for existing assets pending a court case or successful negotiations with the regulator, and additional returns from effective cost control measures.


According to Goldman Sachs, these factors contribute to an anticipated group return on capital employed (ROCE) of around 8.5% for the period between 2025 and 2028. This figure is considered to be significantly higher than the company's cost of capital.


The firm's analysis suggests that E.ON is well-positioned to benefit from its strategic investments and operational efficiency. The raised price target is a testament to Goldman Sachs' confidence in E.ON's ability to outperform market expectations and deliver strong financial results in the coming years.


In other recent news, E.ON, reported a robust financial performance in the first half of 2024. The company announced an EBITDA of €4.9 billion and an adjusted net income of €1.8 billion. Despite a year-over-year drop in EBITDA, the firm reaffirmed its guidance for 2024 and 2028, indicating a commitment to investor value.


E.ON also emphasized growth in investments, efficiency in German power networks, and progress in digitization and automation. The company's investments grew by over 20% year-over-year, totaling €2.9 billion.


E.ON's strong balance sheet was also recognized by Fitch, and updated by S&P and Moody's (NYSE:MCO). The energy giant's €42 billion investment program is fully financed, with a discretionary €2 billion disposal program available for investment in energy transition and the German grid.


InvestingPro Insights


As Goldman Sachs expresses confidence in E.ON's financial future, key metrics from InvestingPro support a nuanced view of the company's current standing. E.ON (OTC: EONGY) maintains a robust market capitalization of $39.62 billion, indicative of its significant presence in the multi-utilities industry. With a forward-looking lens, InvestingPro Tips highlight that E.ON has raised its dividend for 7 consecutive years and is expected to see net income growth this year, which aligns with Goldman Sachs' optimistic outlook.


The company's P/E ratio stands at 19.97, suggesting a reasonable valuation relative to its near-term earnings growth. Additionally, E.ON's stock is known for low price volatility, which might appeal to investors seeking stability. With a dividend yield of 2.81% and a history of maintaining dividend payments for 33 consecutive years, E.ON demonstrates a commitment to shareholder returns. However, it is important to note that the company's short-term obligations currently exceed its liquid assets, which could be a point of consideration for cautious investors.


For those interested in a deeper dive, there are over 10 additional InvestingPro Tips available, offering insights that can further inform investment decisions. To explore these tips and more detailed analytics, visit InvestingPro at: https://www.investing.com/pro/EONGY.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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