Market reaction and valuation
DWS Group GmbH & Co KgaA (ETR:DWSG) shares rose about 3% on Thursday after UBS upgraded the German asset manager from "neutral" to "buy" and increased its 12-month price target to €70 from €56 - a 25% lift. UBS said the move reflects improved earnings visibility and a capital return plan that, in the broker's view, could deliver €10.16 per share in total distributions across the next 15 months, an amount the firm equated to roughly 17% of DWS's current market capitalization.
As of Feb. 18 the stock was trading near €58.90, putting UBS's new target at about 20% above those levels.
Drivers behind UBS's upgrade
UBS pointed to DWS's fourth-quarter 2025 results as strong and noted management's guidance that total costs in 2026 will remain flat relative to 2025. In response, the bank raised its 2026-28 earnings-per-share estimates by between 7% and 12%, leaving UBS's forecasts 1% to 3% above consensus for that period.
Central to UBS's bullish case is an anticipated special dividend of €4.00 per share - approximately €800 million - that the bank expects DWS to pay in early 2027. This follows management's announcement that it would return a "substantial part" of excess capital, which UBS recorded as roughly €1 billion at the end of fiscal 2025.
UBS aggregates that €4.00 special distribution with the company's 2025 ordinary dividend of €3.00 per share and a projected 2026 ordinary dividend of €7.16 per share to reach €10.16 in expected payouts over the next 15 months.
Earnings and operational outlook
On the earnings front, UBS projects adjusted net earnings to rise from €939 million in 2025 to €1.003 billion in 2026, €1.089 billion in 2027 and €1.189 billion in 2028 - year-over-year growth roughly in the 7% to 9% range. UBS's EPS forecasts for those years are €5.01, €5.44 and €5.95, respectively.
Assets under management stood at €1.084 trillion at the start of 2026. Passive products represented €395 billion of AUM at year-end 2025, a segment that expanded by 18% year over year and which UBS identifies as the primary engine for its inflow assumptions. UBS expects total net inflows of €188 billion across 2026-28, with €158 billion of that coming from passive funds.
UBS models a gradual improvement in efficiency. The group's cost-income ratio, at 57.5% in 2025, is projected to decline to 55.9% in 2026 and to 54.8% in 2027, moving toward management's 55% target.
Fund performance and structural catalysts
UBS highlighted improvements in fund performance metrics. The average one-year performance percentile for DWS's equity funds rose from the 42nd percentile to the 67th percentile over the prior 12 months. Three- and five-year performance percentiles improved by 8 and 9 points, respectively, versus levels recorded in June 2025.
The broker also cited potential structural tailwinds tied to proposed reforms of Germany's pension framework, specifically measures aimed at the third pillar that would shift some pension exposure from bank deposits to capital markets. German household holdings of investment funds grew at a two-year compound annual rate of 17.9% through the third quarter of 2025, the fastest pace among the major European countries tracked in UBS's analysis. UBS noted, however, that it did not include any explicit benefit from pension reform in its base-case models because of uncertainty over whether such reforms will pass.
Valuation, capital and risk-reward
On a headline basis DWS trades at about 11.7x forward earnings, which UBS says is one standard deviation above the company's seven-year historical average. UBS argued that stripping out the expected dividend payments over the coming 15 months reduces the forward P/E to 9.5x - a figure that UBS says would correspond to implied outflows of 4% to 5% of AUM, versus the bank's inflow forecast of 4% to 6%.
UBS's DCF-based €70 price target incorporates €1.2 billion in excess capital, equivalent to about €6 per share. In UBS's scenario analysis, an upside case reaches €86 - a 47% gain from current levels - while a downside case falls to €46, a 21% decline. The bank presents a 2.2-to-1 risk-reward ratio to the upside based on those scenarios.
What remains uncertain
UBS's projection relies on management executing capital returns as indicated and on achieving the inflow and cost-improvement assumptions embedded in the forecast. The bank did not model specific pension reform benefits into its base case due to legislative uncertainty, leaving that potential upside unquantified in its primary scenario.