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Investing.com -- Bernstein upgraded RWE (BIT:RWE) to “outperform” from “market perform” in a note dated Thursday, lifting its price target to €41 per share, a 21% potential upside from the September 2 closing price of €33.81.
The upgrade follows what the analysts called a “combination of improving conviction on the company’s capital allocation strategy, improving industry fundamentals and compelling near-term catalysts.”
The brokerage cited capital allocation as the key shift. RWE cut its 2024–30 capex plan by 25%, reducing it from €55 billion to €45 billion, with €6.93 billion set for 2025, €3.81 billion for 2026 and €5.53 billion for 2027.
The company also raised hurdle rates on renewable investments by 50 basis points to above 8.5%.
At its March results, RWE said it would not pursue subsidy-free offshore wind auctions in Europe or large-scale acquisitions, a move Bernstein described as “a sign of greater discipline.”
Alongside tighter investment criteria, RWE launched a €1.5 billion share buyback program in November 2024. By August 29 this year, about €640 million had been executed, covering roughly 20 million shares.
The company indicated it was open to additional buybacks, depending on opportunities in U.S. renewables and German gas. Bernstein noted that an extra €3 billion in repurchases could boost earnings per share by around 15% by 2027.
“We regard share buybacks as an attractive capital allocation alternative for RWE, driving EPS accretion, should investment opportunities fall short of hurdle rates,” the analysts said.
Earnings estimates show modest near-term pressure before growth resumes. Forecast EPS stands at €2.12 in 2025, €2.54 in 2026 and €3.15 in 2027, compared with €3.12 in 2024.
EBITDA is expected at €4.76 billion in 2025, €5.49 billion in 2026 and €6.55 billion in 2027, while EBIT is projected to rise from €2.51 billion in 2025 to €3.64 billion in 2027.
Net income is forecast at €1.54 billion in 2025, €1.79 billion in 2026 and €2.21 billion in 2027.
Net debt is set to climb gradually, from €15.55 billion in 2025 to €17.55 billion in 2027, leaving leverage at around 1.4-1.6x EBITDA. Dividend per share is expected to increase from €1.16 in 2025 to €1.27 in 2027.
Bernstein flagged two catalysts. In the UK, RWE is positioned for December’s AR7 offshore wind auction, with up to 7 gigawatts of eligible capacity, including the 4.2 GW Norfolk zone acquired from Vattenfall.
At a forecast clearing price of about £87/MWh, Norfolk could deliver a 10% life-cycle equity return. “We expect AR7 to clear at >£85/MWh in 2024 money, driving more attractive value creation prospects,” the brokerage said.
In Germany, the government is preparing a new gas power plant auction framework for 2026. RWE has up to 3 GW of projects ready, with potential project IRRs between 10% and 15% depending on final terms.
Bernstein acknowledged past offshore wind commitments without secured power purchase agreements as a drag but said these risks were reflected in valuation.
With renewables EBITDA projected to grow from €3.43 billion in 2025 to €5.04 billion in 2027, the analysts added “even taking this into account, we still see too much upside not to upgrade the stock.”