We are upbeat about Eni SpA’s E prospects and believe it is a promising pick right now.
The company currently sports a Zacks Rank #1 (Strong Buy) and a VGM Score of A. Our research shows that stocks with a VGM Score of A or B when combined with a Zacks Rank #1 or 2 (Buy) offer the best opportunities for investors.
Let’s take a look at the other factors that make this integrated energy player an attractive bet.
Upstream Operations Can Sustain Low Oil
Eni announced that new upstream projects will increasingly contribute to overall production from 2018 to 2021. Importantly, the company expects its new projects to sustain operations at crude price of lower than $30 a barrel. Hence, it is clear that Eni is striving to boost production by reducing operating costs significantly.
Investors should know that the leading energy firm projects compound annual production growth rate of 3.5% through 2021 from 2017. The growth in production will help the company to continue to reward shareholders with considerable cashflow.
Refining Business to Grow
By the end of 2021, the company expects earnings before interest and tax (EBIT) from its Refining & Marketing operations to grow to €900 million. Recommencement of activities at the EST plant in Sannazzaro and higher contributions from biofuel production will attribute to the positive outlook.
More Upside Potential
On the basis of the trailing 12-month enterprise value-to-earnings before interest, tax, depreciation, and amortization (EV/EBITDA) ratio, which is a commonly used multiple for valuing oil and gas stocks, we see that the stock is currently trading at 3.24X.
Over the past five years, the stock has traded as high as 7.32X, as low as 2.85X and at the median of 4.66X, as the chart below shows.
The company’s current multiple is lower than the median level and significantly below the five-year high mark, reflecting substantial upside potential.
Other Stocks to Consider
Other prospective players in the energy space are TC PipeLines, LP TCP, Cabot Oil & Gas Corporation COG and Unit Corporation UNT. All the stocks sport a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
TC PipeLines beat the Zacks Consensus Estimate in three of the last four quarters, the average positive earnings surprise being 15.6%.
Cabot will likely post earnings growth of 113.2% and 59.9% through 2018 and 2019, respectively.
Unit Corporation surpassed the Zacks Consensus Estimate in three of the last four quarters, the average positive earnings surprise being 21.3%.
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