Eni S.p.A. (E - Free Report) looks compelling at the moment. Given the company’s strong fundamentals as well as positive estimate revisions, it seems like this is the right time to add the stock to your portfolio.
Based in Rome, Italy, Eni is among the leading integrated energy players of the world. The company’s upstream operations include exploitation, as well as production of oil and natural gas resources. Eni transports and stores hydrocarbons through its midstream activities. The company is also engaged in refining hydrocarbons and distributing the end products in more than 70 nations. The company also generates and sells electricity. Notably, it currently has a Zacks Rank #1 (Strong Buy), which means the company is poised to outperform the market.
What Makes Eni an Attractive Pick?
Surging Upstream Activities
Eni’s constant efforts to expand upstream operations are expected to go a long way in generating profitable growth. The company expects hydrocarbon production growth of 3% through 2018, primarily backed by ramped-up production from Egypt’s Zohr and Noroos gas fields. Moreover, the start-up of new upstream projects in Ghana and Indonesia will continue to support Eni's oil production.
Planned Spending to Bolster Profits
Eni is planning to allocate as much as €3.5 billion through 2021 in 25 countries for exploration and production activities. This initiative will likely help the company achieve a compound annual production growth rate of 3.5% through 2021 from 2017. The company expects 2018 capital spending of €7.7 billion, which is expected to result in increasing profit levels for the company. Full-year 2018 earnings are expected to surge more than 100% on a year-over-year basis. For 2019, the bottom line is expected to grow more than 20%.
Downstream Activities to Boost FCF
Apart from upstream businesses, Eni is also planning to achieve growth from its refining, marketing and chemical operations. Through 2021, the company projects free cash flow (FCF) of more than €4.7 billion from downstream activities. It is to be noted that owing to its trailing 12 months’ overall operations, the company generated a whopping FCF of $8.6 billion.
For 2018, the company intends to increase the dividend by 3.75% annually to €0.83 per share, fully payable in cash. The dividend policy is expected to be progressive with its underlying earnings growth. With a diverse set of NGL, natural gas, crude oil and refined products midstream infrastructure assets, the company possesses strengths that will continue to support dividend growth.
In terms of EV/EBITDA ratio, which is one of the best multiples for valuing oil and gas companies because energy firms have a large amount of debt, Eni seems undervalued. The company currently has an average trailing 12-month EV/EBITDA ratio of 3.4, which is below the collective industry’s average of 5.5.
Other Stocks to Consider
Investors interested in the energy sector can opt for other top-ranked stocks given below:
Houston, TX-based Enterprise Products Partners L.P. (EPD - Free Report) holds a Zacks Rank #1 (Strong Buy). The company’s earnings for 2018 are expected to surge more than 35% year over year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Houston, TX -based TC PipeLines, LP (TCP - Free Report) has a Zacks Rank #1. Its earnings for 2018 are expected to grow more than 27% from the 2017 level.
Houston, TX -based Shell Midstream Partners, L.P. (SHLX - Free Report) carries a Zacks Rank #2 (Buy). The company’s profits for 2018 are expected to grow nearly 20% from 2017.
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It's not the one you think.
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