E.ON upgraded to ’buy’ as BofA sees growth from Germany’s infrastructure boost

Investing.com -- E.ON has been upgraded to a "buy" from a "neutral" rating by analysts at BofA Securities, who cited a shift in Germany’s fiscal policy as a key catalyst, in a note dated Thursday. 

Shares of the energy company were up 1.6% at 07:50 ET (12:50 GMT)

The German government’s decision to lift its long-standing constitutional “debt brake” and inject €500 billion into infrastructure projects over the next decade is expected to create new growth opportunities for the energy provider.

Although E.ON’s shares initially dropped due to a spike in bond yields, analysts at BofA Securities see the policy change as a game-changer. 

The analysts argue that the infrastructure spending push could benefit E.ON in multiple ways: expanding its energy network, increasing demand for its services, and improving the regulatory landscape. 

The analysts raised their price objective for E.ON to €15.50, up from €12.60, reflecting a more than 25% potential upside.

E.ON is positioned to capitalize on Germany’s infrastructure overhaul, particularly in areas such as municipal grid upgrades, electric vehicle charging networks, and smart meter installations. 

The energy transition and digitization efforts—both of which require significant investment in power grids—could further drive E.ON’s growth. 

Additionally, the company is not expected to require additional equity to fund increased capital expenditures, even in the event of a 50% capex boost.

BofA analysts also noted that upcoming regulatory decisions could provide greater earnings visibility for E.ON. 

The German electricity network regulator is set to publish new guidelines in the second half of 2025, with changes potentially leading to improved returns for E.ON’s regulated assets. 

A favorable regulatory shift could double E.ON’s expected earnings per share growth rate, strengthening its investment appeal.

Despite its recent downgrade in January due to concerns about slow investment growth, E.ON has signaled that it may accelerate spending plans earlier than anticipated. 

If regulatory conditions prove supportive, the company could ramp up capital expenditures as soon as next year, rather than waiting for the next five-year regulatory period beginning in 2029.

BofA Securities views E.ON’s valuation as attractive compared to its peers, with an 11.1x price-to-earnings ratio for 2025E. 

The company’s dividend yield is also expected to grow steadily, further enhancing its investment case. The analysts believe that as E.ON’s earnings mix increasingly shifts towards regulated infrastructure, its stock could experience multiple expansions.

While uncertainties remain—particularly concerning interest rates and the regulatory outlook—BofA Securities sees E.ON as well-positioned to benefit from Germany’s infrastructure investment plans. 

The analysts highlight the company’s strong balance sheet, stable cash flow, and improving earnings trajectory as key reasons behind their decision to upgrade the stock.