On Tuesday, HSBC adjusted its financial outlook for Eni SpA, an energy company listed on both Borsa Italiana ( ENI (BIT:ENI):IM) and the New York Stock Exchange (NYSE: E), by lowering its price target. The new target for Eni's stock has been set at €15.30, a decrease from the previous €16.00, while the firm's rating remains at Hold.
The revision in the price target comes after HSBC's analysis indicated a need to modestly reduce Eni's earnings per share (EPS) and cash flow projections for the years 2024 to 2026. This adjustment is primarily due to an anticipated drop in Global Gas (GGP) profits following two years of exceptional performance. Additionally, the lowered target price reflects an expectation of reduced share buybacks by Eni.
Despite Eni's recent underperformance in the market—where it lagged by 5.5% since the Capital Markets Day—the company's free cash flow (FCF) and distribution yields for 2024-2025 are still comparable or marginally lower than those of other European Supermajor oil companies. However, HSBC suggests that Eni's stock should be subject to higher yields considering its higher risk profile and indicates that the shares might face further devaluation in the short term.
Lastly, HSBC notes that Eni's current discount to the Supermajors, approximately 20% based on the 2025 enterprise value to debt-adjusted cash flow (EV/DACF), is not significantly wider than the historical average. The firm also posits that the valuation gap between Supermajors and mid-sized majors like Eni could potentially narrow as the former may experience a re-rating.
InvestingPro Insights
Following HSBC's revised financial outlook for Eni SpA, current metrics from InvestingPro provide additional insights into the company's financial health and market performance. Eni's adjusted market capitalization stands at a robust $50.31 billion, reflecting its significant presence in the energy sector. Despite recent market underperformance, the company shows a relatively low Price/Earnings (P/E) Ratio of 7.85 based on the last twelve months as of Q4 2023, suggesting that its stock might be undervalued relative to earnings.
InvestingPro data also reveals that Eni has maintained a solid dividend yield of 4.7%, as of the latest data, which could be attractive to income-focused investors. However, it's important to note that the company's revenue growth has seen a decline, with a -29.01% change over the last twelve months as of Q4 2023. This may be a contributing factor to the adjustments in HSBC's outlook and the anticipated decrease in share buybacks.
For readers interested in a deeper analysis, InvestingPro offers additional tips that could provide further clarity on Eni's future prospects. There are 15 additional InvestingPro Tips available for investors seeking more comprehensive data and analysis. Subscribers can use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, gaining access to a wealth of financial information and expert insights.
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