Index falls as earnings results weigh; pound above $1.33, Bodycote soars
On Wednesday, JPMorgan issued a downgrade for Equinor (EQNR:NO) (NYSE: EQNR) stock, adjusting the rating from Overweight to Neutral. Accompanying the rating change, the firm also revised the price target for the Norway-based energy company, reducing it from NOK 320.00 to NOK 270.00. The stock, currently trading at $23.27, near its 52-week low, maintains strong fundamentals with a market capitalization of $63.9 billion and an attractive P/E ratio of 7.45x. According to InvestingPro analysis, the company appears undervalued based on its comprehensive Fair Value model.
The downgrade by JPMorgan reflects concerns about Equinor’s financial gearing, which is expected to change negatively in the context of a $60 per barrel oil price environment. Equinor is projected to have the fastest one to two-year re-gearing profile among European oil companies under these conditions. However, InvestingPro data shows the company currently operates with a moderate debt level, maintaining a healthy current ratio of 1.54 and strong financial health metrics. Subscribers can access 10+ additional ProTips and detailed financial health scores for deeper insights. This rapid re-gearing could potentially impact the total shareholder return (TSR) flexibility beyond 2026, especially in a scenario where the Empire Wind project is canceled, placing the company in the upper half of its gearing range.
JPMorgan’s Commodities team also anticipates a shift in the dynamics of the European gas market. They predict that the factors contributing to tight end-of-winter storage levels in Europe are likely to reverse, leading to a more relaxed pathway to achieving 90% storage. Additionally, potential policy changes regarding European inventory targets could further reduce summer gas prices.
The valuation of Equinor was another point of concern for JPMorgan. According to their analysis, the current valuation does not adequately compensate for the risks, particularly in a scenario where oil is priced at $60 per barrel. Under these conditions, Equinor’s yields fall below the average for European oil companies, with an 8.8% cash yield in 2026 compared to the sector’s 11.1%. Currently, the company offers an attractive dividend yield of 8.87% and has maintained dividend payments for 24 consecutive years. Get access to comprehensive valuation metrics and the detailed Pro Research Report covering Equinor through InvestingPro. The new price target of NOK 270 represents a 16% decrease and factors in a revised earnings per share estimate for 2026, influenced by a nearly 20% reduction in oil and gas prices. It also takes into account the normalization of macro-related premiums or discounts under current conditions, including the elimination of a 5% premium previously attributed to gas. Lastly, a new 5% TSR discount is applied due to the anticipated compression of free cash flow and gearing in both the base case and the $60 oil price scenario.
In other recent news, Equinor ASA (NYSE:EQNR) has agreed to sell its 60% stake in Brazil’s Peregrino oil field to Prio Tigris Ltda. for $3.35 billion, with an additional potential $150 million in interest. This transaction, effective January 1, 2024, is part of Equinor’s strategy to optimize its international portfolio. Meanwhile, Redburn-Atlantic has downgraded Equinor’s stock rating from ’Buy’ to ’Sell’, citing concerns over financial stability amid lower oil price forecasts and potential increases in net debt. The firm also slashed the price target from NOK330.00 to NOK230.00. Additionally, the Empire Wind 1 offshore project, wholly owned by Equinor, has been suspended due to insufficient analysis by the Biden administration. Equinor is also exploring market interest for its assets in Vaca Muerta, Argentina, including stakes in the Bandurria Sur and Bajo del Toro Norte areas. In a recent SEC filing, Equinor corrected a clerical error regarding its dividend information, with the revised cash dividend per share communication date set for February 20, 2025.
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