Equinor ASA (NYSE:EQNR) EQNR is well poised for growth on the back of production possibilities and strong renewables opportunities. However, weak energy demand continues to be a concern.
Headquartered in Stavanger, Norway, Equinor is one of the premier integrated energy companies in the world. It is the second-largest supplier of natural gas in Europe. For the next five years, the company’s profits are expected to increase 5.8%. Moreover, it delivered an average earnings surprise of 84.1% in the past four quarters.
Let’s take a closer look at the factors that substantiate its Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
What’s Favoring the Stock?
Equinor is one of the premier integrated energy companies in the world, with operations spread across 30 countries. The company is the second-largest supplier of natural gas in Europe. Equinor is also a leading seller of crude oil. Over the years, the company has developed its expertise to expand upstream operations outside of conventional offshore resources to prolific shale oil and gas plays.
It made 16 commercial oil and gas discoveries in 2019, reflecting a significant increase from the nine discoveries made in 2018. Also, during third-quarter 2020, the energy giant made 13 commercial discoveries. Some of the notable discoveries were made in the U.S. Offshore Gulf of Mexico and Brazil’s Santos basin. All the discoveries are likely to help Equinor reach a compound annual oil-equivalent production growth rate of 3% through 2026 from 2019.
The energy major has received approval from the board of directors for a quarterly dividend of 11 cents per share, representing a hike of 22.2% from the prior dividend. The dividend will be paid on Feb 26, 2021 to shareholders on record as of Feb 12, 2021. The dividend hike came at a time when some of the European energy giants like BP plc (LON:BP) BP (NYSE:BP) and Royal Dutch Shell (LON:RDSa) plc RDS.A were compelled to slash their dividend payments. As such, the move can boost investors’ confidence in the stock.
Notably, the integrated firm’s key strategy is to capitalize on the renewable energy space and align its operations with the Paris Climate Agreement. Thus, to combat climate change, the company is actively investing in renewable energy projects, comprising power generation from solar and wind energy. Equinor expects to boost production capacities from renewables to 4-6 gigawatts (GW) by 2026. The company also plans to become a net-zero greenhouse gas emitter by 2050. Moreover, by 2035, it plans to further boost the capacity of renewable projects to 12-16 GW.
The company generates sufficient energy from wind farms located off the coast of Germany and U.K. to power more than 1 million homes in Europe. Importantly, it recently announced that Italy-based energy major, Eni S.p.A. E has agreed to join its famous Dogger Bank Wind Farm project. Equinor has signed a deal to divest 10% to Eni for £202.5 million. The deal underlines Equinor’s efforts to generate value from renewable assets. Outside of Europe, Empire Wind is the first wind project of the company. Also, its offshore wind farm in New York is producing up to 2000 megawatts of electricity.
Hurdles in Growth Path
Despite its tremendous upside potential, some factors are affecting the stock’s growth.
The coronavirus pandemic has dented global energy demand, in turn resulting in a significant decline in Brent crude oil price from the beginning of 2020. Weak crude pricing scenario is hurting the company’s upstream business.
Refining and processing businesses are also bearing the brunt of the pandemic. This is because the demand for refined products like petrol and diesel has gone down significantly, with more people preferring to stay at home and avoiding travel.
At the end of third-quarter 2020, the company reported total debt of $37,470 million, and cash and cash equivalents of $7,844 million. Its debt-to-capitalization was almost 52.3%, reflecting a levered balance sheet. This might affect the company’s financial flexibility.
To Sum Up
Despite significant prospects, Equinor’s massive debt and a weak crude price environment are concerning. Nevertheless, we believe that systematic and strategic plan of action will drive its long-term growth.
Which Way are Estimates Headed?
The Zacks Consensus Estimate for 2020 earnings per share has risen 20% in the past 60 days to 54 cents.
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