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Equinor's $5B Buyback to be Aided by Johan Sverdrup Output

Zacks Equity Research

Equinor ASA EQNR recently announced a share repurchase program valued at $5 billion. The buyback plan will run through 2022. Almost 292 million shares outstanding (8.7% of total share capital) can be redeemed using this share repurchase program.

The company will likely use a portion of the total amount, expected to be about $1.5 billion, for immediate share repurchases. By Feb 25, 2020, this first phase is anticipated to be completed. The Ministry of Petroleum and Energy of Norway will participate in the repurchase program with the intention of keeping its ownership interest in the company intact at 67%.

The company’s strong cash generation capabilities are primarily supporting the program. The Johan Sverdrup oil field’s earlier-than-expected production commencement and several other such start-ups are expected to further enhance its production volumes and cash generating abilities, which will in turn support the buyback plan.

The share repurchase program is in line with the company’s goal of increasing capital distribution, without compromising on investments in high-quality projects. Per this plan, Equinor boosted quarterly dividend payments in 2019 by 13%, banking on operational improvements. Moreover, the company expects capital expenditure for 2019 in the range of $10-$11 billion. Till 2021, the capital expenditure is expected to average $11 billion per annum.

Notably, strong financials — with net debt of only 20%, and cash and cash equivalents of $15 billion — position the company to be on track to increase capital distribution.

Price Performance

Equinor has declined 18.7% year to date against 0.9% growth of the industry it belongs to.

Zacks Rank and Stocks to Consider

Currently, Equinor carries a Zacks Rank #3 (Hold). Some better-ranked players in the energy space are National Oilwell Varco, Inc. NOV, Dril-Quip, Inc. DRQ and NuStar Energy L.P. NS, each holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

National Oilwell’s 2019 earnings per share are expected to rise 75% year over year.

Dril-Quip’s 2019 earnings per share are expected to rise 131.8% year over year.

NuStar Energy’s third-quarter 2019 earnings per share are expected to gain more than 107% year over year.

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