Equinor ASA EQNR is well placed to grow thanks to production possibilities and strong opportunities for renewable energies. However, the low refining margin continues to be a source of concern.

Based in Stavanger, Norway, Equinor is one of the world’s leading integrated energy companies. It is the second largest supplier of natural gas in Europe. Over the next five years, the company’s profits are expected to increase by 48.5%. Remarkably, it delivered an average profit surprise of 37.8% over the past four quarters.

Equinor ASA Prize and EPS surprise

Equinor ASA price-eps-surprise | Quote Equinor ASA

Let’s take a closer look at the factors behind his Zacks # 3 (Hold) rank.

What favors the stock?

Equinor has strong operations in 30 countries. In addition to being the second largest supplier of natural gas in Europe, it is also one of the main sellers of crude oil. He made 16 commercial oil and gas discoveries in 2019 and 2020 each. In the March 2021 quarter alone, the company made four business discoveries. Some of the notable discoveries were made in the Gulf of Mexico off the United States and in the Brazilian basin of Santos. All of these discoveries will likely help Equinor achieve a 3% compound annual growth rate in oil-equivalent production through 2026.

Despite the passage of a turbulent period caused by the COVID-19 pandemic, the board of directors of the energy major proposed a quarterly dividend of 15 cents per share, an increase of 25% from the previous dividend . This move can boost investor confidence in the stock.

The key strategy of the integrated company is to capitalize on the renewable energy space and align its operations with the Paris Climate Agreement. Thus, to fight against climate change, the company actively invests in renewable energy projects, including the production of electricity from solar and wind energy. Equinor plans to increase its renewable energy generation capacity to 4-6 gigawatts (GW) by 2026. The company also plans to become a net emitter of greenhouse gases by 2050.

In addition, by 2035, Equinor plans to further increase the capacity of renewable projects to 12-16 GW. It already produces enough energy from wind farms off the German and British coasts to power more than a million homes in Europe. Remarkably, its offshore wind farm in New York produces up to 2,000 megawatts (MW) of electricity.

Obstacles on the path to growth

Despite its enormous upside potential, certain factors are affecting the stock’s growth.

Low refinery margins and the shutdown of production at the Hammerfest LNG plant hurt the Marketing, Midstream & Processing segment of the company. In addition, demand for refined products is still under pressure, with major Asian economies continuing to suffer from a second wave of infections. As such, its refineries and processing plants will likely continue to experience lower margins.

As of March 31, 2021, Equinor was reporting only $ 8,992 million in cash and cash equivalents, while its total debt stood at $ 30,775 million. This massive indebtedness could affect the financial flexibility of the company.

to summarize

Despite the bright outlook, Equinor’s massive debt and downstream pressure are cause for concern. Nonetheless, we believe that a systematic and strategic action plan will stimulate its long-term growth.

In what direction are the estimates headed?

Zacks’ consensus estimate for 2021 earnings per share is set at $ 2.33, reflecting a whopping 27-cent jump in 2020. It has seen 3 upward revisions to estimates in the past 30 days, down from none. in the opposite direction.

Key choices

Some better ranked players in the energy space include Earthstone Energy, Inc. ESTE, Braskem SA BAK and PHX Minerals Inc. PHX, each with a Zacks # 2 (Buy) rank. You can see The full list of current Zacks # 1 Rank (Strong Buy) stocks here.

Earthstone sales for 2021 are expected to increase 87.7% year over year.

Braskem’s net income for 2021 is expected to grow 231.3% year-over-year.

PHX Minerals’ net income for 2021 is expected to increase 40% year over year.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.