Eni: High Yield And Cheap Valuation Is A Winning Combination

| About: ENI S.p.A. (E)

After the rally over the last few months, finding good value in equities is much harder than it was late last year. I am rotating into more high yielding stocks that should outperform if we hit a market decline which I expect is not a long time coming. One stock I like here because of its cheap valuation and robust dividend yield is Italian oil giant Eni (NYSE:E). The company's prospects are on the uptrend and I think the stock has nice capital appreciation potential while investors collect a nice yield, a winning combination. The stock sells at a discount to other major integrated energy concerns due to the negative sentiment around Italy, even it gets little of its production from inside the country.

Recent positives:

  • Consensus earnings estimates for both FY2013 and FY2014 have moved up substantially over the last month.
  • The company has agreed to sell a 28.6% stake in Eni East Africa to China National Petroleum Corp. for $4.21B. Eni will retain a 50% stake in the fields.
  • It also just announced plans to increase its dividend by around 4% as it believes "The company will achieve industry-leading upstream growth rates in 2013".

Eni is a major integrated energy company. It engages in the exploration, production, transportation, transformation, and marketing of oil and natural gas. The company is also involved in the production and sale of electricity; refining and marketing of petroleum products.

4 reasons E is a solid income pick up at under $47 a share:

  1. With the announced dividend increase the stock yields near 6%.
  2. The company is one of the most important players in the continent of Africa. It gets over 50% of its production there currently and Mozambique is the biggest gas find in its history. As Africa becomes a more important contributor to world energy supplies, Eni should benefit.
  3. The stock is cheap at around 9x this year's projected earnings and under 6x operating cash flow.
  4. The median price target on the shares is $54 a share and it has easily surpassed earnings expectations the last two quarters.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in E over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.