We reaffirmed our Neutral recommendation on Eni SpA (E) on Sep 23, 2013. Eni’s outlook for the upcoming months is favorable, given its 2013–2016 strategic plans to enhance production and implement steps to control costs and recover profitability.
However, the positives are partially mitigated by a weak macroeconomic scenario in Italy and Europe that is likely to affect its performances going forward. Eni carries a Zacks Rank #3 (Hold).
Why Maintained?
Eni’s constant efforts to expand its upstream operations in Cyprus, Egypt, Vietnam, Indonesia, Pakistan and Kenya will go a long way in generating profitable growth in the future. Moreover, project start-ups, inputs from big projects in Algeria, Iraq, Australia, Russia and Egypt, as well as its strategic position in non-conventional gas, are expected to augment volumes going forward.
Italian oil and gas major expects its 2013 oil and natural gas production to be higher than the reported 2012 level, given the commissioning of major projects like Kashagan in Kazakhstan as well as other assets including the Angola liquefied natural gas and the gas assets in Algeria.
Moreover, stepped-up production at the fields commissioned last year also raises our optimism on Eni’s assured profitability over the coming quarters. The company remains upbeat on its production growth target of more than 4% annually in the said period and 3% annually until 2022.
During the first half of 2013, Eni brought online six upstream projects, including the delayed Kashagan oil field in Kazakhstan. The company’s successful exploration activities have augmented its portfolio by 950 million barrels of oil equivalent resources. The company is concentrating on the fast-track development of conventional and synergic oil assets.
However, Eni believes that a certain degree of ambiguity still looms with respect to the economic slowdown, in particular the Euro zone. The European gas, refining and marketing, and chemicals sectors also remain highly volatile. Overall demand will likely remain weak due to the ongoing economic dormancy.
Other Stocks to Consider
While we prefer to remain on the sidelines for Eni, Zacks Ranked #1 (Strong Buy) stocks – China Petroleum & Chemical Corp. (SNP), Stone Energy Corp. (SGY) and Enbridge Energy Management, LLC (EEQ) – could be good investment options for the short term.
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