E.ON Target

Ah, the politics of energy. I'm generally not a big fan of government intrusion into business, but regulated sectors like utilities can provide you with pretty decent gains if you play your hand right. Though Germany's E.ON (NYSE: EON  ) certainly has some regulatory issues to surmount, it continues to be one my favorite European companies.

Results for this first quarter were basically more of the same of what I've come to expect. Revenue was up 37%, and reported earnings were up 18% (well ahead of the published estimates), but adjusted EBIT and adjusted EBITDA were both up their regular mid-single-digit amounts. I know mid-single-digit growth doesn't sound terribly exciting, but in this case, at least it's sufficient to generate a nice stream of repeatable cash flow.

E.ON's quarter also once again demonstrated some of the benefits of a diversified business model. Decent growth in the Central European power business (helped in part by operations in Romania and Bulgaria) and a very strong result in the gas business helped offset a pretty tough quarter in the U.K. business (which was hurt by the higher cost of procuring natural gas).

Honestly, though, as long as the wheels don't fall off the bus, I don't think anybody cares all that much about the quarter-to-quarter goings-on at E.ON right now. The bigger issue here is the regulatory environment that E.ON is facing.

First and foremost is the bid to acquire Spain's Endesa (NYSE: ELE  ) . E.ON made a bid that was clearly financially superior (all cash and worth $9 billion more than the rival bid), but the Spanish government is apparently trying to interrupt the deal. Ultimately, I still think E.ON will succeed and that the deal will be a major coup, but there will almost certainly have to be more chest-thumping, grandstanding, and general political nonsense before this is over.

A potentially more serious matter is a recent raid from EU investigators. Concerned about monopolistic/anti-trust behavior in the gas market, EU G-men raided the offices of E.ON, RWE (Nasdaq: RWEOY  ) , Gaz de France, OMV (Nasdaq: OMVKY  ) , Distrigas, and Eni (NYSE: E  ) . I really don't know at this point how serious this investigation could become, but I know that E.ON has been targeted in the past for behavior pertaining to its distribution practices. Obviously, this is an issue to watch carefully.

Even keeping those regulatory matters in mind, I still think this is a stock that can bring a good return to long-term investors. It won't be exciting, but there's nothing wrong with getting richer a little bit at a time.

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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).

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