Bernstein has downgraded RWE AG (ETR:RWEG) from an outperform rating to market-perform, citing valuation considerations after a sharp rise in the share price. The broker raised its target to €55 from €50 but described the prospective upside as marginal relative to trading levels, a view that contributed to a more cautious recommendation and pressured the stock down more than 2% on Friday.
According to Bernstein, RWE's stock has appreciated roughly 57% during 2025 and gained in excess of 15% in early 2026. The firm now calculates that its new €55 target implies only about 1% upside from the February 11 closing price of €54.46, leading analysts to conclude that the risk-reward has become symmetric and no longer supports an outperform stance.
The brokerage noted that the company’s operational outlook has strengthened materially, and that current market prices increasingly reflect these improvements. Bernstein points to a forward price-to-earnings multiple for RWE of approximately 20.8 times, which it says is about 45% higher than the company’s trailing five-year average and is comparable to multiples seen during the 2021 renewables valuation peak.
Despite the downgrade, Bernstein acknowledged a number of positive developments across RWE’s portfolio. In the UK, RWE secured favorable outcomes in the most recent AR7 offshore wind auction, winning contracts for five of six projects at a clearing price of £91.2 per megawatt-hour. Bernstein models suggest those projects will deliver equity internal rates of return in a range between 9.9% and 13.1%.
In the United States, the firm has also found tailwinds stemming from regulatory developments. Following the passage of the OBBBA Act in July 2025 and subsequent IRS guidance, RWE has safe-harbored between 8 and 10 gigawatts of capacity that qualify for tax credits through 2030. Bernstein further notes that US onshore wind and solar power purchase agreement prices rose about 9% in 2025, reaching roughly $74/MWh for wind and $62/MWh for solar in early 2026, with demand from data centers cited as a contributing factor.
When modeling outcomes, Bernstein portrays a relatively balanced profile for RWE. The firm’s bear case implies approximately 15% downside, while its bull case offers around 13% upside. From current trading levels, Bernstein translates these scenarios into a view of about 19% potential upside and 10% potential downside, reinforcing the brokerage’s view that valuation no longer offers a clear directional bias.
Looking ahead to the company’s March 12 capital markets update, Bernstein expects management to maintain disciplined capital allocation. The broker projects that RWE will restate or confirm its existing earnings targets for 2027 and 2030 but does not anticipate an expansion of the share buyback program.
Bernstein’s financial forecasts assume earnings per share growth of about 12% annually from fiscal 2025 through fiscal 2030 and into fiscal 2031. The firm also keeps RWE’s capital expenditure envelope steady at €35 billion for the 2025-2030 period.
The analysts highlighted management’s improved approach to investment discipline, noting that the company cut its like-for-like capital spending plan by 25% in March 2025 and raised internal hurdle rates following concerns that had prompted a downgrade in July 2024. Bernstein stated it does not expect capital misallocation risks to recur under current management practices.
Following the reassessment of RWE, Bernstein said it prefers alternative renewable exposures in EDP Renovaveis and EDP, which the broker sees as offering upside potential of 10.4% and 14.7% respectively.
Key points
- Bernstein has downgraded RWE to market-perform from outperform after a strong share-price rally left limited upside to the new €55 target.
- RWE’s business improvements include strong UK AR7 auction results and safe-harbored US capacity from the OBBBA Act, supporting returns on new projects.
- Analysts model a roughly balanced risk-reward profile, with bear-case downside of about 15% and bull-case upside near 13%.
Risks and uncertainties
- Valuation risk - RWE trades at a forward P/E near 20.8x, about 45% above its five-year trailing average, suggesting limited margin for valuation compression.
- Limited upside from current pricing - Bernstein’s €55 target implies only minimal upside from recent closing prices, constraining potential gains for investors.
- Capital allocation visibility - Bernstein expects disciplined capital allocation and no buyback extension at the March 12 update, which may influence shareholder return dynamics.