Eni Stays at Neutral - Analyst Blog

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We are maintaining our Neutral recommendation on Eni SpA ( E ), reflecting its recent international endeavors, partially offset by the weak oil and gas fundamentals.

Based in Rome, Italy, Eni SpA along with its consolidated subsidiaries is engaged in oil and gas, electricity generation, petrochemicals, oilfield services and engineering industries. The company is also involved in offshore and onshore hydrocarbon field construction.

In the third quarter of 2011, Eni performed impressively with adjusted earnings per ADR of $1.41 (€0.50 per share), above the Zacks Consensus Estimate of $1.16 and up 18.5% from $1.19 per ADR (€0.46 per share) earned in the year-earlier quarter. Total revenue improved 15% to €26.11 billion ($36.96 billion) in the quarter and was ahead of the year-ago revenue of €22.70 billion ($29.28 billion).

We believe that Eni's outlook for the upcoming months remains favorable given its 2011-2014 strategic plans to enhance production and implement steps to control costs and recover profitability. The company remains upbeat regarding its production growth target, which is expected to increase more than 3% annually in the said period.

We expect Eni to reap benefits from its international operations. Recently, the company won two new Production Sharing Contracts in Indonesia and signed a deal with Sonangol E.P. to explore offshore deepwater block in Angola.

However, as inherent in the energy sector, Eni remains exposed to the volatile oil and gas fundamentals. We remain apprehensive regarding the uncertainty associated with the company's gas business (sales declined 3% year over year in the third quarter).

Additionally, Eni's growth momentum will likely be adversely affected by the geo-political disruptions in the Middle East, particularly in Libya along with fluctuations in consumer demand levels and new rules and regulations imposed by the government periodically.

Owing to the shut down of the majority of the company's facilities in Libya, we expect throughput to decline in 2011 from the year-ago level.

Considering the above factors, we expect Eni to perform in line with the broader industry. Eni, which faces stiff competition from peers such as Total SA ( TOT ) and Chevron Corporation ( CVX ), holds a Zacks #3 Rank, which translates into a Hold rating for a period of one to three months.

CHEVRON CORP ( CVX ): Free Stock Analysis Report

ENI SPA-ADR ( E ): Free Stock Analysis Report

TOTAL FINA SA ( TOT ): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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