Stock Analysis & Ideas

Equinor Energized by Rising Oil Prices

Equinor (EQNR) stock has been in an uptrend in the last one-year. During this period, the stock of this energy company has trended higher 27.8%. However, after touching highs of $23.3, the stock has corrected to current levels of $19.5.

The reason for the positive momentum in the last year is an easy guess. Energy prices have recovered significantly from March 2020 lows. With Brent oil trading above $70 per barrel, oil and gas stocks have been in the limelight.

It also seems that the rally for oil is likely to sustain. Bank of America believes that oil is likely to touch $100 next year on demand rebound. This is a key reason to believe that there is a possibility of further upside for EQNR stock.

In terms of fundamental factors, revival in global economic growth has triggered higher demand for oil. According to the International Monetary Fund, the global economy is likely to grow at 6.0% in 2021 and 4.4% in 2022. Demand revival will ensure that the demand-supply gap is narrowed and oil prices remain firm.

Further, expansionary monetary policies are likely to continue in the United States through 2023. Easy money has already accelerated inflation, and commodities and energy (as an asset class) tend to perform well when interest rates are artificially low.

Therefore, there are positive industry tailwinds and Equinor seems well positioned to capitalize on this momentum. (See Equinor stock charts on TipRanks)

Attractive Assets and Robust Financial Flexibility

A key factor that makes Equinor attractive is quality assets. As an example, Johan Sverdrup is one of the largest projects in the Norwegian Continental Shelf. Equinor is the operator in the project with 42.6% stake.

The first phase of the project is likely to deliver peak production of 535,000boepd. In the second phase (2022), production is expected to increase to 720,000boepd. Importantly, the asset has a full-field break-even of $15 per barrel.

Therefore, even if oil trades in the region of $60 to $70 per barrel, the project will deliver healthy EBITDA and cash flows. Furthermore, the company expects average break-even oil price of $35 per barrel for projects coming on-stream through 2030.

Clearly, Equinor is among the best bets considering the cash flow potential, even if oil prices remain stagnant at current levels. To put things into perspective, Equinor expects free cash flow of $45 billion between 2021 and 2026 from oil and gas projects.

The cash flow can be utilized for higher dividends, share repurchase and possible de-leveraging.

Focus on Renewable Energy

Focus on renewable energy is another reason to like Equinor. The company expects to achieve net carbon neutrality by 2050.

Through 2026, the company expects gross capital expenditure on renewables at $23 billion. This is likely to be funded entirely by oil and gas asset cash flows.

Further, Equinor has a target of renewable energy capacity of 12-16GW by 2030. Equinor also expects to have three to five clusters of clean hydrogen project by 2035.

At the same time, the company’s production growth is expected to sustain. Through 2021, Equinor expects annual production growth of 2%.

Wall Street’s Take on Equinor

According to TipRanks’ analyst consensus rating, EQNR stock comes in as a Moderate Buy with 2 Buy and 1 Hold ratings assigned in the last three months.

As for price targets, the average Equinor price target is $28.00 per share, implying around 43.2% upside potential from current levels.

Concluding Views on Equinor

Considering the break-even for oil and gas assets, Equinor seems to be among the most attractive companies.

Currently, Equinor has an annualized dividend pay-out of $0.15 per share. This translates into a healthy dividend yield of 3.0%. If oil sustains above $70 per barrel, dividends can possibly increase.

These factors make EQNR stock worth considering for the medium to long-term.

Disclosure: On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.

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