Investing.com -- Shares of TotalEnergies SE (EPA:TTEF) rose following an upgrade from RBC Capital Markets, which elevated its rating on the company to "outperform" from "sector perform."
The revised outlook was based on several factors, including a reassessment of the company’s valuation, strategic positioning, and longer-term growth prospects.
TotalEnergies has recently faced a period of underperformance, lagging behind its peers by over 15% since the summer.
This downturn was attributed to a combination of macroeconomic and company-specific challenges, such as uncertainties in French politics, including potential tax changes and budget debates, as well as issues related to investments in Adani Green Energy (NS:ADNA) amid an ongoing investigation.
Despite these concerns, RBC noted that the market reaction has been disproportionate, with TotalEnergies’ market capitalization dropping by about $20 billion since early November.
RBC analysts highlighted that the company’s fundamentals remain intact, supported by a credible growth trajectory and a leading integrated power strategy.
TotalEnergies is currently investing heavily in growth projects, which has impacted near-term free cash flow yields.
However, the firm argues that these investments position the company for FCF growth in the coming years, especially as global gas prices recover and the company benefits from its LNG and upstream operations.
The valuation of TotalEnergies, which trades at a modest premium relative to its European peers, was another key driver behind the upgrade.
RBC said that this premium is justified due to TotalEnergies’ potential to deliver robust total shareholder returns in 2025, estimated at 12.7%, the highest among its peers.
The brokerage also noted that, unlike some competitors who are expected to scale back buybacks, TotalEnergies’ execution on shareholder-friendly policies could enhance its attractiveness to investors.
Additionally, TotalEnergies' "clean-firm power" strategy was described as a competitive advantage.
The company’s plans to integrate renewables into its portfolio, alongside traditional energy production, make it a unique player in addressing the anticipated surge in global power demand. While the company has paused some U.S. offshore wind projects due to regulatory shifts, RBC sees its broader renewable strategy as well-aligned with market trends.
The upgrade included a new price target of €80, reflecting an upside from its recent trading levels around €54.
Analysts noted that near-term risks, including political uncertainties in France and execution challenges for key projects, are already factored into the stock’s current valuation, presenting an opportunity for long-term investors.