On Wednesday, HSBC announced a revised price target on Eni SpA ( ENI (BIT:ENI):GR) (NYSE: E), lowering it to EUR15.90 from the previous EUR16.10. Despite the reduction, the firm maintained a Buy rating on the stock. The adjustment comes amid expectations that Eni will report a decrease in third-quarter adjusted net income quarter-over-quarter at approximately EUR1.2 billion, with most divisions experiencing a downturn compared to the second quarter.
The anticipated decline in earnings is attributed to a combination of factors affecting the company's operations. HSBC predicts that Eni's Upstream Earnings Before Interest and Taxes (EBIT) will fall due to a decrease in oil prices, which is expected to have offset the benefits of higher European gas prices. Additionally, the company's production is estimated to have declined by 4% quarter-over-quarter to around 1.65 million barrels per day, primarily due to seasonal maintenance.
The Global Gas & Power (GGP) division is also expected to report lower EBIT quarter-over-quarter, following an exceptionally strong performance in the second quarter. This forecast aligns with the typical seasonal pattern, where the third quarter is usually the weakest. However, the Enilive™ segment is projected to see some positive results from strong marketing profits, which could help mitigate the impact of further deterioration in biofuels margins.
In the refining sector, HSBC anticipates that Eni will experience a loss, driven by a sharp decline in the company's European refining margins. This expected loss in the refining division is indicative of the challenges faced by the industry, particularly in the European market. Despite these setbacks, the Buy rating suggests that HSBC still sees potential value in Eni's stock.
In other recent news, Eni SpA reported a 6% year-on-year production growth in its strategic four-year plan, which emphasizes profitability, growth, value realization, deleveraging, and a competitive distribution policy. The company has been advancing in its energy transition goals with investments in biorefineries and renewable energy projects, aiming for net zero by 2030. Eni's first half pro forma earnings before interest and taxes (EBIT) were reported at EUR 8.2 billion, while cash flow from operations (CFFO) reached EUR 7.8 billion.
Eni's full-year production is anticipated to be at the high end of its guidance, with a projected pro forma adjusted EBIT and CFFO of approximately EUR 15 billion and over EUR 14 billion, respectively. The company also plans to continue its share buyback program and potentially increase its distribution share in the next quarter. These are recent developments in the company's operations and strategic planning.
Eni is also executing its disposal plan faster than expected, contributing to debt reduction and expecting leverage to be well below 20% by year-end. The company's satellites, Plenitude and Enilive, are generating significant cash flow and are on track to deliver a combined guidance of EUR 2 billion of pro forma EBITDA this year.
Finally, Eni plans to accelerate its divestment program in the upcoming quarters, potentially increasing its distribution share up to 35% of CFFO, with an additional buyback value of EUR 500 million.
InvestingPro Insights
To complement HSBC's analysis of Eni SpA (NYSE: E), recent data from InvestingPro offers additional perspective on the company's financial position. Eni's market capitalization stands at $49.28 billion, reflecting its significant presence in the energy sector. The company's P/E ratio of 11.79 suggests that it may be undervalued compared to industry peers, aligning with HSBC's maintained Buy rating despite the lowered price target.
InvestingPro Tips highlight Eni's strong dividend profile, with a current dividend yield of 4.77% and a impressive dividend growth of 15.05% over the last twelve months as of Q2 2024. This robust dividend performance could be attractive to income-focused investors, especially in light of the anticipated earnings decline.
The company's revenue for the last twelve months as of Q2 2024 was $100.51 billion, with a quarterly revenue growth of 16.38% in Q2 2024. This growth, despite the challenging market conditions noted by HSBC, demonstrates Eni's resilience in a volatile energy market.
For investors seeking a more comprehensive analysis, InvestingPro offers additional tips and metrics to further evaluate Eni's investment potential. Currently, there are 13 more InvestingPro Tips available for Eni, providing a deeper insight into the company's financial health and market position.
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