Norway stocks higher at close of trade; Oslo OBX up 0.21%

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 Aspects

Integrated 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 Stock

Fluctuations 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 Thoughts

While 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 Picks

Some 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.

Zacks Investment Research

Energy stocks were leaning lower pre-bell Friday as the Energy Select Sector SPDR Fund declined by 0.1% recently.

The United States Oil Fund was down 0.1% and the United States Natural Gas Fund was 4.2% lower.

Front-month US West Texas Intermediate crude oil was 0.5% lower at $69.73 per barrel on the New York Mercantile Exchange. Global benchmark North Sea Brent crude oil lost 0.6% to $73.80 per barrel, and natural gas futures were down 5.1% at $3.17 per 1 million British Thermal Units.

Equinor is reducing its renewable energy unit's staff by 20%, the equivalent of nearly 250 full-time jobs, a spokesperson said. Equinor shares were down more than 1% premarket.

BP said it has made a final investment decision to go ahead with the $7 billion Tangguh Ubadari carbon capture, utilization, and storage compression project in Indonesia on behalf of its production sharing contract partners. BP shares were down 0.5% pre-bell.

Exxon Mobil and partners withdrew from talks with Guyana's government on terms for exploring and developing a shallow-water oil block, Reuters reported, citing Guyana's Vice President Bharrat Jagdeo. Exxon Mobil shares were 0.3% lower premarket.

Technology stocks were leaning lower premarket Friday, with the SPDR S&P Semiconductor ETF inactive and The Technology Select Sector SPDR Fund down 0.2%.

EchoStar shares were down more than 5% after the proposed merger of the company's Dish TV subsidiary with rival DirecTV fell apart over a failed bond-exchange offer.

POET Technologies stock was 0.2% lower after the company said it is voluntarily delisting its shares from the TSX Venture Exchange due to low trading volume.

Nokia shares were nearly 1% higher after the company said it is launching a stock buyback program to repurchase 150 million shares for a total price of up to 900 million euros ($936.2 million).

Energy stocks were leaning lower pre-bell Friday as the Energy Select Sector SPDR Fund (XLE) declined by 0.1% recently.

The United States Oil Fund (USO) was down 0.6% and the United States Natural Gas Fund (UNG) was 4.7% lower.

Front-month US West Texas Intermediate crude oil was 0.4% lower at $69.81 per barrel on the New York Mercantile Exchange. Global benchmark North Sea Brent crude oil lost 0.4% to $73.09 per barrel, and natural gas futures were down 4.7% at $3.18 per 1 million British Thermal Units.

Equinor is reducing its renewable energy unit's staff by 20%, the equivalent of nearly 250 full-time jobs, a spokesperson said. Equinor shares were down more than 1% premarket.

The broad market exchange-traded fund SPDR S&P 500 ETF Trust was down 0.1% and the actively traded Invesco QQQ Trust slipped 0.2% in Friday's premarket activity, ahead of business activity data due later in the day.

US stock futures were also lower, with S&P 500 Index futures retreating 0.1%, Dow Jones Industrial Average futures slipping 0.02%, and Nasdaq futures losing 0.2% before the start of regular trading.

The flash Composite Purchasing Managers' Index for November will be released at 9:45 am ET, followed by the University of Michigan's November consumer sentiment bulletin at 10 am ET.

The weekly Baker Hughes domestic oil-and-gas rig count will be released at 1 pm ET.

In premarket activity, bitcoin was up by 0.4% and the cryptocurrency fund ProShares Bitcoin Strategy ETF was 0.6% higher.

Power Play:

Health Care

The Health Care Select Sector SPDR Fund advanced 0.1%. The Vanguard Health Care Index Fund and the iShares US Healthcare ETF were inactive. The iShares Biotechnology ETF declined marginally by 0.02%.

Modular Medical stock was down 11% premarket after the company said late Thursday it priced its public offering of around 5.5 million shares at $1.50 apiece.

Winners and Losers:

Financial

Financial Select Sector SPDR Fund was flat. Direxion Daily Financial Bull 3X Shares was up 0.1%, while its bearish counterpart Direxion Daily Financial Bear 3X Shares was flat.

Abacus Life shares were down 5% pre-bell Friday after the company said late Thursday that it priced an underwritten public offering of 12.5 million common shares at $8 apiece.

Technology

Technology Select Sector SPDR Fund retreated 0.2%, and the iShares US Technology ETF was inactive, while the iShares Expanded Tech Sector ETF gained by 0.03%. Among semiconductor ETFs, SPDR S&P Semiconductor ETF was inactive, while the iShares Semiconductor ETF declined 0.1%.

StoneCo shares were down 4% in recent Friday premarket activity after the company said late Thursday it authorized the repurchase of up to 2 billion Brazilian reais ($343.9 million) in outstanding Class A common shares.

Consumer

The Consumer Staples Select Sector SPDR Fund was marginally down by 0.04%, while the Vanguard Consumer Staples Fund was inactive. The iShares US Consumer Staples ETF was inactive, and the Consumer Discretionary Select Sector SPDR Fund gained 0.2%. The VanEck Retail ETF was inactive, while the SPDR S&P Retail ETF advanced 0.2%.

Tapestry shares were up 3.2% pre-bell after the company said it signed accelerated share repurchase deals with Bank of America (BAC) and Morgan Stanley (MS) to buy back $2 billion of its common shares.

Industrial

Industrial Select Sector SPDR Fund retreated marginally by 0.01% while the Vanguard Industrials Index Fund and the iShares US Industrials ETF (IYJ) were inactive.

EHang Holdings stock was up 2.3% before the opening bell after the company said its board approved a share repurchase program of up to $30 million of its American depositary shares or ordinary shares over the next 12 months.

Energy

The iShares US Energy ETF was inactive, while the Energy Select Sector SPDR Fund was down by 0.2%.

Equinor stock was down 1.6% before Friday's opening bell after the company said it is reducing its renewable energy unit's staff by 20%, the equivalent of nearly 250 full-time jobs.

Commodities

Front-month US West Texas Intermediate crude oil retreated 0.7% to $69.58 per barrel on the New York Mercantile Exchange. Natural gas fell 2.6% to $3.25 per 1 million British Thermal Units. United States Oil Fund lost 0.7%, while the United States Natural Gas Fund was 2.3% lower.

Gold futures for February were up nearly 1% at $2,724.70 an ounce on the Comex, while silver futures advanced 1.3% to $31.78 an ounce. SPDR Gold Shares gained 1.2%, and iShares Silver Trust was 1.9% higher.