Oil & Gas Integrated company Equinor is taking Wall Street by surprise today, falling to $23.3 and marking a -4.0% change compared to the S&P 500, which moved 1.0%.
EQNR currently sits within range of its analyst target price of $23.83, which implies that its price may remain stable for the near future. Indeed, the average analyst rating for the stock is hold. Over the last year, Equinor has underperfomed the S&P 500 by -12.9%, moving -1.1%.
Equinor ASA, an energy company, engages in the exploration, production, transportation, refining, and marketing of petroleum and other forms of energy in Norway and internationally. The company is classified within the energy sector. The stock prices of energy companies are highly correlated with geopolitics: economic crisis, war, commodity prices, and politics all have an effect on the industry. For this reason, energy companies tend to have high volatility -— meaning large and frequent price swings. As global energy supplies shift towards renewables, we may see a reduced correlation between energy prices and geopolitical events.
Equinor's trailing 12 month P/E ratio is 10.9, based on its trailing EPS of $2.14. The company has a forward P/E ratio of 8.1 according to its forward EPS of $2.87 -- which is an estimate of what its earnings will look like in the next quarter. The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the third quarter of 2024, the energy sector has an average P/E ratio of 18.35, and the average for the S&P 500 is 29.3.
When we subtract capital expenditures from operating cash flows, we are left with the company's free cash flow, which for Equinor was $7.93 Billion as of its last annual report. The balance of cash flows represents the capital that is available for re-investment in the business, or for payouts to equity investors as dividends. The company's average cash flow over the last 4 years has been $16.92 Billion and they've been growing at an average rate of -8.0%. EQNR's weak free cash flow trend shows that it might not be able to sustain its dividend payments, which over the last 12 months has yielded 6.1% to investors. Cutting the dividend can compound a company's problems by causing investors to sell their shares, which further pushes down its stock price.
Value investors often analyze stocks through the lens of its Price to Book (P/B) Ratio (its share price divided by its book value). The book value refers to the present value of the company if the company were to sell off all of its assets and pay all of its debts today - a number whose value may differ significantly depending on the accounting method. Equinor's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 1.45, but is still below the average P/B ratio of the Energy sector, which stood at 1.6 as of the third quarter of 2024.
Since it has a Very low P/E ratio, an average P/B ratio, and positive cash flows with a downwards trend, Equinor is likely fairly valued at today's prices. The company has strong growth indicators because of a PEG ratio of less than 1 and strong operating margins with a positive growth rate. We hope you enjoyed this overview of EQNR's fundamentals. Be sure to check the numbers for yourself, especially focusing on their trends over the last few years.
