Where Do Eni’s Forward Valuations Stand Compared to Its Peers’?



Peer comparison

Earlier in this series, we discussed why Eni (E) has traded lower than its historical valuations. In this part, we’ll consider Eni’s forward valuations compared to those of its peers.

Before we proceed with a peer comparison, let’s consider the market capitalizations (or market caps) of integrated energy companies. Eni’s market cap stands at ~$53 billion. Among the company’s peers, ExxonMobil (XOM) has the highest market cap of ~$345 billion. Chevron (CVX), Total (TOT), and YPF (YPF) have market caps of ~$178 billion, ~$107 billion, and ~$7 billion, respectively.

For exposure to large and established energy stocks, you can consider the iShares Core S&P 500 ETF (IVV). The ETF has ~7% exposure to energy sector stocks.

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Eni’s forward valuations

Eni is now trading at a two-year forward PE (price-to-earnings ratio) of 19.9x, much higher than its peer average of 15.1x. Eni’s peers Suncor Energy (SU), ExxonMobil, and Chevron are also trading above the peer average.

Now, let’s consider another forward multiple, EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization). EV experiences market volatility, while EBITDA changes according to the varying business environment.

Usually, all else being equal, falling oil prices shrink the EBITDA levels of integrated energy companies, and vice versa. So, the EV-to-EBITDA ratio captures the market sentiment as well as the operating performance of an integrated energy company.

Eni is now trading at a two-year forward EV-to-EBITDA ratio of 4x, below its peer average of 5.6x. This suggests a likely higher level of EBITDA for Eni, pushing its EV-to-EBITDA below the peer average. Eni’s peers YPF (YPF), Petrobras (PBR), Royal Dutch Shell (RDS.A), and BP (BP) are also trading below the peer average.

If you’re looking for a portfolio comprising large integrated energy companies, you can consider the iShares Core S&P 500 ETF (IVV). The ETF has ~6.7% exposure to energy sector stocks. IVV also holds XOM and CVX in its portfolio.

In the concluding part of this series, we’ll discuss the correlation between Eni’s stock and crude oil and natural gas prices.


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