On Thursday, Morgan Stanley upgraded Eni SpA ( ENI (BIT:ENI):IM) (NYSE: E) stock, adjusting the rating from Equalweight to Overweight and setting a new price target of EUR18.00.
The upgrade reflects the firm's assessment that Eni is trading at a 20% discount to the sector when considering the 2025 consensus estimates for Cash Flow From Operations (CFFO).
The analyst from Morgan Stanley highlighted Eni's current CFFO multiple of 3.4x and pointed out that although the company's forecasted Free Cash Flow (FCF) yield for 2025 stands at 11.1%, in line with the sector average, a significant portion of its CFFO is being allocated towards capital expenditures. This investment strategy, according to the analyst, has an impact on the company's FCF outlook.
Despite a cautious stance on future oil and gas prices, Morgan Stanley anticipates that Eni will be able to increase its dividend per share (DPS) by approximately 6% annually for the rest of the decade. The firm also expects that around 3% of this increase could be balanced by share buybacks, while the company's gearing, or leverage, continues on a downward trajectory.
Looking beyond 2030, Morgan Stanley applies the same long-term DPS growth assumptions for Eni as for other major players in the industry. However, a higher discount rate of 9.5% is used in their Dividend Discount Model (DDM) valuation due to the higher yields on Eni's corporate bonds. Even with this conservative cost-of-equity assumption, the firm's valuation indicates a 22% upside from current levels, justifying the Overweight rating.
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