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Investig.com -- UBS has downgraded Equinor ASA (OL:EQNR) to “sell” from “neutral,” citing a weaker earnings outlook amid falling gas prices, flat production growth, and lower free cash flow coverage.
The 12-month price target was cut to NKr230 from NKr245, implying a 10% downside from the June 30 share price of NKr255.10.
Net earnings are projected to decline from $9.2 billion in 2024 to $6.2 billion in 2026. Equinor’s distribution yield is forecast to fall to about 5% in 2025 and below 10% in 2026, trailing the sector average of 11%.
Shareholder returns are expected to drop from $9 billion this year to about $6 billion in 2026, with the company unlikely to use additional leverage to offset the decline.
UBS expects a challenging gas market to weigh heavily on Equinor, the most sensitive among European integrateds to European gas price moves.
A $1/mmBtu drop in TTF gas prices reduces Equinor’s cash flow from operations by 2.2%, more than double the sector average.
The brokerage forecasts TTF prices to fall from $12.8/mmBtu in 2025 to $10.5/mmBtu in 2026 and $9.5/mmBtu by 2027 due to increased LNG supply.
Oil prices are also expected to soften, with Brent projected at $62/bbl in Q4 2025 and $65/bbl in 2026, further pressuring earnings. Equinor’s upstream production is forecast to remain flat, averaging 2,014 kboe/d in 2026, compared with 1,942 kboe/d in 2024.
Free cash flow is projected to fall from $5.7 billion in 2024 to $3.0 billion in 2026. Capital expenditure remains elevated, with $12.8 billion planned in 2026.
Gearing is forecast to rise to 20% in 2026, within the company’s 15–30% target range, but limits scope for additional returns via debt.
Renewable investments are not expected to offset upstream weakness. UBS estimates that Equinor’s energy transition businesses will contribute only 2% of earnings by 2030.
Offshore wind delays, including Empire Wind 1, and a lowered 2030 renewables capacity target of 10–12 GW from 12–16 GW further dampen growth prospects.
Despite the earnings decline, Equinor trades at a premium to peers. Its 2026 EV/DACF multiple is 5.8x versus a sector average of 5.9x, while its free cash flow yield is below average.
The revised price target reflects UBS’s blended valuation using a 5x EV/DACF multiple and long-term commodity price assumptions of $75/bbl for Brent and $9.5/mmBtu for TTF gas.
UBS remains 5% below consensus EPS for 2025 and 8% below for 2026, driven by lower gas price forecasts and flat production.