Investing.com -- Citi Research has downgraded E.ON SE (ETR: EONGn ) to “neutral” from “buy” and removed the stock from its European Focus List, citing limited near-term upside following a sharp rise in the share price. The analysts also raised the target price to €15.5 per share from €14.5.

The decision follows a 46% year-to-date increase in E.ON’s stock, driven by improved political stability in Germany and expectations of increased fiscal spending.

According to Citi, this rally reflects broader capital flows into European assets and a favorable outlook for regulated utilities.

However, the stock now trades at a 25% premium to its regulated asset base and 9.5x one-year forward EV/EBITDA, both near the upper end of its historical valuation range.

Citi analysts noted that while E.ON’s structural growth story remains unchanged, the current valuation already prices in anticipated benefits from Germany’s regulatory overhaul and a potential €10 billion capital expenditure program.

These developments are expected to take shape over the next three quarters, with the company set to issue new guidance in March 2026.

The German regulatory review could result in a higher allowed return on equity for older regulated assets, which still make up nearly half of E.ON’s domestic asset base.

Citi estimates a pre-tax ROE uplift to 8% could add about €0.10 to 2029 earnings per share, but this may be partially offset by stricter cost benchmarks.

The brokerage also questioned the feasibility of E.ON’s stated 8% post-tax ROE goal, equivalent to 11.4% pre-tax, citing current reference rates and consumer sensitivity to power prices.

Citi has not included the €10 billion capex in its forecasts, as E.ON has tied the investment to regulatory approval of adequate returns. In a base-case scenario, Citi estimates the additional spending could boost 2029 EPS by around 3% and raise net debt to EBITDA from 4.7x to 5.1x.

While fundamentals remain solid, Citi views the valuation as stretched. It noted that the stock’s premium to RAB is the highest since the energy crisis in 2022 and exceeds that of several EU-regulated peers.

E.ON’s forward EV/EBITDA multiple also sits below the peer median, a reflection of its larger supply division and Eastern European exposure.

Citi sees the share price fluctuating between €13.4 and €18.7 through 2028, excluding the capex impact.

Including the potential investment, the value could rise by €1 per share, half of which was factored into the updated target price.