On Friday, Morgan Stanley (NYSE:MS) upgraded E.ON SE (ETR:EONGn) (EOAN:GR) (OTC: EONGY (OTC:EONGY)), a leading energy company, from Equalweight to Overweight, setting a price target of EUR15.00. The firm cites the recent underperformance of E.ON's stock as an opportunity for investors. The stock has seen a decline of 7% since its peak on September 17, which Morgan Stanley views as an overreaction.
The analyst from Morgan Stanley believes that the market's concerns regarding the upcoming German election and the potential implications for E.ON are overblown. The CDU/CSU, currently leading in the polls, released an energy plan on November 5 that mentioned halving grid fees, a proposal that has caused uncertainty among investors.
However, Morgan Stanley's analysis suggests that if this policy were to be implemented after the February 2025 election, it would likely be funded through a fiscal subsidy rather than affecting the regulated returns of electricity network investments.
Morgan Stanley points to the CDU/CSU's plan to use the Climate Transition Fund (KTF) for subsidizing grid fees, which supports the firm's stance that the financial burden would not fall on grid operators. Furthermore, the current German Cabinet's approval of a €1.3 billion grid subsidy is seen as a precedent indicating that lower electricity tariffs, especially for industrial users and potentially broader customer bases, would be financed by federal funds.
The upgrade to Overweight by Morgan Stanley reflects a positive outlook on E.ON's shares, suggesting confidence in the company's ability to navigate the political and regulatory landscape in Germany. The firm's new price target of EUR15.00 represents a notable increase from the stock's recent performance and indicates an expectation of recovery and growth for E.ON SE in the near future.
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