Equinor ASA ( EQNR Quick Quote EQNR - Free Report) is well poised for growth on the back of production possibilities and strong renewables opportunities. However, weak refining margin 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 surge 48.5%. Markedly, it delivered an average earnings surprise of 37.8% in the last four quarters.
Let’s take a closer look at the factors that substantiate its Zacks Rank #3 (Hold).
What’s Favoring the Stock?
Equinor has strong operations spreading across 30 countries. Apart from being the second-largest supplier of natural gas in Europe, it is also a leading seller of crude oil. It made 16 commercial oil and gas discoveries in 2019 and 2020 each. In the March quarter of 2021 alone, the company completed four commercial discoveries. Some of the notable discoveries were made at the U.S. Offshore Gulf of Mexico and Brazil’s Santos basin. All the discoveries are likely to help Equinor reach compound annual oil-equivalent production growth rate of 3% through 2026.
Despite passing through a turbulent period caused by the COVID-19 pandemic, the energy major’s board of directors proposed a quarterly dividend of 15 cents per share, representing a hike of 25% from the prior dividend. The move can boost investors’ confidence in the stock.
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 investing actively 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, Equinor plans to further boost the capacity of renewable projects to 12-16 GW. It already generates sufficient energy from wind farms located off the coast of Germany and the United Kingdom to power more than 1 million homes in Europe. Markedly, its offshore wind farm in New York is producing up to 2000 megawatts (MW) of electricity.
Hurdles in Growth Path
Despite its tremendous upside potential, some factors are affecting the stock’s growth.
Low refinery margins and production shutdown at the Hammerfest LNG facility have been hurting the company’s Marketing, Midstream & Processing segment. Moreover, demand for refined products is still under pressure as major economies in Asia continue to suffer from a second wave of infections. As such, its refineries and processing plants will likely continue to encounter lower margins.
As of Mar 31, 2021, Equinor reported only $8,992 million in cash and cash equivalents, while its total debt amounted to $30,775 million. This massive debt burden might affect the company’s financial flexibility.
To Sum Up
Despite significant prospects, Equinor’s massive debt and downstream pressure 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 2021 earnings per share is pegged at $2.33, reflecting a humongous jump from 27 cents in 2020. It has witnessed 3 upward estimate revisions in the past 30 days compared to none in the opposite direction.
Some better-ranked players in the energy space include
Earthstone Energy, Inc. ( ESTE Quick Quote ESTE - Free Report) , Braskem S.A. ( BAK Quick Quote BAK - Free Report) and PHX Minerals Inc. ( PHX Quick Quote PHX - Free Report) , each having a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here .
Earthstone’s sales for 2021 are expected to jump 87.7% year over year.
Braskem’s bottom line for 2021 is expected to rise 231.3% year over year.
PHX Minerals’ bottom line for 2021 is expected to surge 40% year over year.
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