Reasons to Retain Equinor Stock in Your Portfolio for Now

Equinor ASA EQNR, a Norwegian integrated energy firm, has a diversified portfolio of assets involving oil and gas, renewables and low-carbon energy solutions. The company is committed to meeting the increasing global demand for energy while working on its goal to become a net-zero energy firm by 2050. EQNR also invests heavily in renewables, showcasing its commitment to the global energy transition and a low-carbon future. However, crude price volatility and increasing capital expenditures add to the concern. Despite having underperforming the Oil-Energy sector on a year-to-date (YTD) basis, we believe that this Zacks Rank #3 (Hold) company’s strong fundamentals and commitment to returning capital to shareholders make it an attractive investment opportunity in the long run.Let us delve into the key factors associated with Equinor’s strong performance.Positive AspectsIntegrated Business Model: Equinor possesses a multi-faceted business model involving both upstream and downstream operations. The company’s upstream operations involve mainly exploration and production of oil and gas in core regions like Brazil, Norway and the U.S. Gulf of Mexico, among others.EQNR is the major operator within the Norwegian Continental Shelf. The company continuously explores for new oil and gas reserves to replace depleting and mature fields, thereby contributing to global energy security. Its downstream operations involve refining and marketing oil and gas products. The energy firm’s presence in both upstream and downstream segments allows it to diversify its revenue streams.Renewables: Equinor heavily invests in renewables and low-carbon energy solutions, including offshore wind, solar energy, hydrogen and carbon capture projects. The company recently acquired 41.2 million shares in Orsted A/S, representing a 9.8% stake in the company, and expanding its offshore wind portfolio.EQNR is committed to becoming a net-zero energy firm within 2050 by reducing emissions, balancing its portfolio by scaling up investments in wind and solar power, and developing low-carbon solutions such as hydrogen and CCS. This diversification positions Equinor as a leader in the global energy transition, addressing the growing demand for cleaner energy. This should also allow Equinor to tap into emerging markets for low-carbon solutions.Returns to Shareholders: In recent years, EQNR has prioritized shareholder returns through dividends and share buybacks. The board has announced a regular cash dividend of 35 cents per share and an extraordinary cash dividend of 35 cents per share for the third quarter of 2024. Furthermore, the company is expected to execute a share buy-back program for 2024, valued at $6 billion, bringing its total capital distribution for the year to approximately $14 billion.While Equinor has strong long-term potential, the current market conditions and specific challenges facing the company cannot be ignored.Red Flags for EQNR StockFluctuations in Crude Prices: Like other exploration and production companies, EQNR’s upstream business is also extremely vulnerable to oil price volatility. Any event that may lead to a downturn in the market, affecting demand for the commodity, can significantly hurt this segment’s revenues.Currently, a slowdown in global economic activities and persistently lower crude demand from China, the world’s largest oil importer, are putting downward pressure on oil prices. These developments are anticipated to affect EQNR’s upstream business profitability.Debt Load: Equinor's balance sheet demonstrates a notable level of debt exposure, which may weigh down on its financials. The company’s long-term debt totaled $22.4 billion at the end of the third quarter with a cash balance of $8 billion. The high level of debt raises concerns regarding the company’s financial flexibility and its ability to navigate economic downturns.High Capital Expenditure: Equinor has a high capital spending associated with advancing its renewable projects. Renewable energy projects require substantial upfront investments and the rapid transition from oil and gas to renewables might weigh down on the short-term profitability of energy firms.In addition, Equinor continues to invest in developing new oil and gas reserves to replace depleted fields, ensuring a reliable energy supply. While these expenditures are likely to yield long-term benefits, they lay pressure on the company’s financial performance in the near term. The company has outlined a capital spending budget of $12-$13 billion for 2024.Final ThoughtsWhile certain factors, such as oil price volatility, high debt and high capital expenditures, may present short-term financial challenges, Equinor’s diversified business model, commitment to sustainability and continued ability to sustain shareholder returns providea positive outlook.Key PicksSome better-ranked stocks from the energy sector are Smart Sand, Inc. SND, FuelCell Energy FCEL and Nine Energy Service NINE, each presently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Smart Sand is a low-cost producer of high-quality Northern White frac sand, an ideal proppant for hydraulic fracturing and various industrial applications. The company provides proppant and other logistics services for several companies in the oil and gas industry. With sustained oil and gas market demand, SND is expected to see growing demand for its services, providing a positive outlook.FuelCell Energy is a clean energy company offering low-carbon energy solutions. It produces power using flexible fuel sources such as biogas, natural gas and hydrogen. The company designs fuel cells that generate electricity through an electrochemical process that combines fuel with air, reducing carbon emissions and minimizing the environmental impact of power generation. As such, FCEL is anticipated to play a crucial role in the energy transition by enabling industries and communities to shift from traditional fossil fuels to low-carbon alternatives.Nine Energy Service provides onshore completion and production services for unconventional oil and gas resource development. The company operates across key prolific basins in the United States, including the Permian, Eagle Ford, MidCon, Barnett, Bakken, Rockies, Marcellus and Utica, as well as throughout Canada. With a sustained demand for oil and gas in the future, the need for NINE’s services is anticipated to increase, which should position the company for growth in the long run.5 Stocks Set to DoubleEach was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2024. While not all picks can be winners, previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.Today, See These 5 Potential Home Runs >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report FuelCell Energy, Inc. (FCEL): Free Stock Analysis Report Smart Sand (SND): Free Stock Analysis Report Nine Energy Service, Inc. (NINE): Free Stock Analysis Report Equinor ASA (EQNR): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks