Goldman Sachs sees higher returns for E.ON shares due to rising return on equity By Investing.com

On Monday, Goldman Sachs updated its forecast for E.ON SE (EOAN:GR) (OTC: EONGY) shares and increased the price target from EUR 17.00 to EUR 17.50. The investment bank maintained its buy rating and justified the adjustment with the company’s potential to achieve higher returns through future investments.

Goldman Sachs stressed that the current assessment of E.ON’s return on equity (ROE) for domestic assets, which is around 5.5% before taxes, may be too pessimistic.

The analysts highlighted three key factors that could improve E.ON’s financial performance:
1. Higher returns on equity for new investments
2. Possible upward revision of ROE for existing assets, depending on the outcome of ongoing legal proceedings or successful negotiations with the regulator
3. Additional income through effective cost control measures

According to Goldman Sachs, these factors lead to an expected return on capital employed (ROCE) of around 8.5% for the period 2025 to 2028. This forecast is well above the company’s cost of capital.

The analysis suggests that E.ON is well positioned to benefit from its strategic investments and operational efficiencies. The increased price target reflects Goldman Sachs’ confidence in E.ON’s ability to exceed market expectations and deliver strong financial results in the coming years.

In other recent news, E.ON reported a robust financial performance for the first half of 2024. The company announced EBITDA (earnings before interest, taxes, depreciation and amortization) of €4.9 billion and adjusted net income of €1.8 billion. Despite a year-on-year downside in EBITDA, the company confirmed its guidance for 2024 and 2028, underscoring its commitment to investor value.

E.ON also emphasized growth through investments, efficiency improvements in the German power grids and advances in digitalization and automation. The company’s investments increased by over 20% year-on-year to a total of 2.9 billion euros.

E.ON’s strong balance sheet has also been recognized by rating agencies: Fitch confirmed its rating, while S&P and Moody’s updated their assessments. The energy giant’s €42 billion investment program is fully funded, with an additional €2 billion divestment program available for investments in the energy transition and the German power grid.

InvestingPro Insights

While Goldman Sachs shows confidence in E.ON’s financial future, key metrics from InvestingPro support a nuanced view of the company’s current position. E.ON (OTC: EONGY) has a solid market capitalization of $39.62 billion, underscoring its significant presence in the utility industry. InvestingPro Tips highlights that E.ON has increased its dividend for 7 years in a row and net income is expected to grow this year, which is consistent with Goldman Sachs’ optimistic outlook.

The company’s price-to-earnings (P/E) ratio is 19.97, suggesting a reasonable valuation relative to near-term earnings growth. Additionally, E.ON stock is known for its low price volatility, which may appeal to investors seeking stability. With a dividend yield of 2.81% and a 33-year uninterrupted dividend payment history, E.ON shows a strong commitment to shareholder returns. However, it is important to note that the company’s short-term sales currently exceed its cash, which may be a point of reflection for cautious investors.

For those who want to dive deeper, there are over 10 additional InvestingPro Tips available that provide further insight for investment decisions. To explore these tips and detailed analysis, visit InvestingPro at: https://www.investing.com/pro/EONGY.

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