Eni: Strategic Plan Is Exciting, But Valuation Is Where It Should Be

Mar.20.12 | About: ENI S.p.A. (E)

Eni (NYSE:E) is one of the largest oil energy companies in the world, sporting a market cap of over $90 billion. The company is one of the leading energy companies in Europe. Last week, the company announced its 2012-2015 strategic plan. Highlights included that Eni raised its average annual target for production growth to over 3% in the 2012- 2015 period. For natural gas, Eni said that

the outlook for supply in the European gas market is challenging in the short term with spot gas prices expected to be lower than those for oil-linked contracts. This scenario will continue to cause competitive pressure in the market.

Eni further noted that

this situation is expected to gradually improve in the medium to long term: the increase in demand, driven by economic recovery and the increase in consumption of gas for fuel, in conjunction with the decrease in supply, will contribute to a recovery in the European gas scenario.

The valuation metrics are all mixed on the stock, suggesting that the stock is fairly valued at current prices. Below is an in depth look at the valuation metrics and stock chart.

Valuation: Eni's trailing 5 year valuation metrics suggest that the stock is undervalued as all of the metrics are below their respective 5 year averages. Eni's current P/B ratio is 1.2 and it has averaged 1.6 over the past 5 years with a high of 2.6 and low of 0.8. Eni's current P/S ratio is 0.6 and it has averaged 0.8 over the past 5 years with a high of 1.3 and low of 0.4. Eni's current P/E ratio is 9.9 and it has averaged 10.4 over the past 5 years with a high of 23.2 and low of 5.8.

Price Target: The consensus price target for the analysts who follow Eni is $54. That is upside of 9% from today's stock price of $49.44 and suggests that the stock is overvalued at these levels. This also suggests that the stock has limited upside and should be avoided at its current stock price.

Forward Valuation: Eni is currently trading at about $49 a share with analysts expecting EPS of $5.88 next year, an earnings increase of 25% y/y, for a forward P/E ratio of 8.4. Taking a look at the company's publically traded comparisons will give us a better idea of the stock's relative valuation. Total (NYSE:TOT) is currently trading at about $56 a share with analysts expecting EPS of $7.3 next year, an earnings increase of 4% y/y, for a forward P/E ratio of 7.7.

BP is currently trading at about $47 a share with analysts expecting EPS of $7.12 next year, an earnings increase of 8% y/y, for a forward P/E ratio of 6.6. Statoil (NYSE:STO) is currently trading at about $28 a share with analysts expecting EPS of $2.83 next year, an earnings increase of 1% y/y, for a forward P/E ratio of 10. The mean forward P/E of Eni's competitors is 8.1 which suggests that Eni is fairly valued relative to its publically traded competitors.

Earnings Estimates: Eni has beat EPS estimates 2 times in the past 4 quarters. The company's EPS figures have come in between -24 cents and 20 cents from consensus estimates or about -17.1% to 16.5% from analyst estimates. The company has reported earnings that have differed from analyst estimates by a wide margin which suggests that the stock may experience upside from earnings surprises.

Price Action: Eni is up 3.7% over the past year, underperforming the S&P 500, which is up 12.6%. Looking at the technicals, the stock is currently above its 50 day moving average, which sits at $45.35 and above its 200 day moving average, which sits at $41.95.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.