Eni SpA

Eni reported adjusted net earnings of EUR 2.3 billion, compared with EUR 1.1 billion the year before, on higher commodity prices and wider refining margins. With strong results and an improved outlook, Eni increased full-year guidance and increased planned shareholder returns.

Why it matters: Ongoing Middle East disruptions and uncertainty about any resolution to the Iran War are keeping oil and gas prices elevated and refining margins well above historical levels. Eni is benefiting beyond just the price effect, with higher production as well, leading to strong results. Production grew 7% year over year to 1.8 mboe/d, driven by project ramp-ups in West Africa and Norway and new startups in Angola. Excluding price and portfolio effects, production was 11% higher. Full-year growth is now expected to be around 5%, compared with 3%-4% previously. Management also increased earnings guidance for global gas and power, Enilive and Plentitude, as well as companywide cash flow guidance, while reducing net capital expenditure expectations. The Plentitude deconsolidation is expected to close in the third quarter.

The bottom line: Our EUR 20.90 fair value estimate and no moat rating are unchanged. We have already incorporated higher oil and gas prices and strong refining margins into our model, so the guidance update has little bearing on our valuation. We continue to see value in Eni's differentiated transition satellite model, which the market has begun to recognize, thanks in part to the surge in commodity prices. However, we see shares as slightly overvalued given the expectation that oil prices and refining margins will fade to midcycle levels over the next couple of years. Management also increased share repurchase plans to EUR 3.4 billion, an increase of 20% from last quarter's guidance of EUR 2.8 billion, which was increased from the original EUR 1.5 billion plan. Continued strength in oil and refining margins could lead to a special dividend later this year.

Our fair value estimate is $49.30 per share, reflecting the most recent strategic and financial guidance and higher near-term oil and gas prices. Our fair value estimate corresponds to a forward enterprise value/EBITDA multiple of 3.0 times our 2027 EBITDA forecast of EUR 27.4 billion.

We derive our fair value estimate using Morningstar’s standard three-stage discounted cash flow methodology. Under this methodology, we derive a terminal value using our assumptions for long-term earnings growth and return on new invested capital. This valuation methodology also more explicitly incorporates our moat rating, which reflects how long we expect a given firm to deliver excess returns on invested capital from a discounted cash flow analysis.

In our DCF model, we assume Brent prices of $90/bbl in 2026 and $88/bbl in 2027. Our long-term oil-price assumption is $60. We assume a cost of equity of 9.0% and a weighted average cost of capital of 7.8%.

We forecast production to grow to 2.0 mmboe/d in 2030, in line with management’s guidance for a 3%-4% CAGR from 2025. We also forecast a gradual improvement in downstream and gas and power midcycle earnings, driven by a revamped chemicals segment and improved contract structures in gas and power. We forecast earnings growth slightly below management guidance of EUR 2.5 billion in EBITDA in 2030 for Plenitude and EUR 3.0 billion in EBITDA for Enilive.

Our gross capital spending forecast is EUR 7 billion in 2026, in line with guidance. Our forecast is slightly higher than the guidance of EUR 29 billion for 2026-30. We do not explicitly model any divestitures, but management indicates that they will offset spending by about EUR 4 billion during the forecast period.

In our view, Eni does not have an economic moat, as its asset base cannot deliver durable excess returns at our long-term oil price assumption of $65/bbl.

Although Eni’s upstream portfolio has delivered strong returns in recent years, it fails to qualify for a moat, given its history of uneven returns. We also do not think it can deliver returns on capital employed above 10% at our midcycle price. This compares with a return on capital employed of 15% from 2010 to 2014, when oil prices were much higher. While Eni’s production costs are low relative to peers, largely thanks to production from North Africa, it also realizes higher tax rates that weigh on margins and returns. While we expect Eni to increase production from higher-margin assets and grow its liquefied natural gas portfolio, which will improve returns, we do not think these efforts will prove sufficient to deliver durable excess returns for the upstream segment.

Eni’s downstream—refining and chemicals—segment will also likely prove to be an obstacle to delivering excess returns. Although the segment has struggled with profitability in the past, we expect modest improvement. Eni has diversified its European refining assets by adding capacity in the Middle East through its 20% ownership in ADNOC Refining, which has a refining capacity of 922 thousand b/d. Its chemicals segment should improve as it restructures to focus more on biochemicals and advanced materials rather than base chemicals, while benefiting from margins returning to midcycle levels in the coming years from currently depressed levels.

Eni carved out its marketing and biofuels businesses to form Enilive. In biofuels, Eni is converting its lower-quality European refineries to biofuel facilities, which have a more attractive demand and margin outlook, thanks in part to government support. Eni plans to double biorefining capacity to above 3 mmt/y by 2028 and above 5 mmt/y by 2030. Marketing looks to capitalize on alternative energy distribution (for example, electric vehicle charging) and food offerings to reduce reliance on petroleum products over time. We do not see these efforts collectively carving out durable competitive advantages at this time, as others are doing the same, but they should improve returns. Management is targeting 15% returns on capital by 2030.

Eni also has a large gas and LNG segment that holds a collection of floating LNG assets and equity interests, largely in Africa (Congo, Mozambique, Egypt, Nigeria and Angola), which we consider worthy of a moat based on cost advantage. While the segment has delivered low returns in the past, this was largely due to poor contract structures and rising gas supply prices. Eni’s recent efforts to restructure contracts, increase integration, and increase supply sources are improving profitability and returns for the segment.

Eni plans to grow its renewable power generation installed capacity to 10 GW by 2028, 15 GW by 2030, and 60 GW by 2050 from about 6 GW in 2025. We typically consider renewable generation—particularly solar, where Eni is focusing its efforts (more than 70% of renewable generation)—unworthy of a moat, since it offers little opportunity for competitive advantage and typically has low returns.

As other firms move into the space, power rates may compress, though Eni seeks to mitigate this by integrating renewable production with its retail customer base, which is targeted to grow to 15 million by 2030 and 20 million by 2050.

Eni continues to leverage its offshore wind expertise, participating in major projects such as the Dogger Bank development in the UK, to carve out a cost advantage. However, success remains to be seen, as it will likely remain a relatively small player that lacks the scale for a cost advantage. Offshore wind has also faced cost inflation, which has damaged returns.

Eni’s other efforts to reduce its carbon intensity are unlikely to result in a durable competitive advantage either. Efforts to reduce carbon intensity include ramping up carbon capture, utilization, and storage to more than 15 mmt/y by 2030 and over 40 mmt/y in the 2030s. This business has been established as a satellite company (Eni CCUS Holding) in a joint venture with Global Infrastructure Partners. However, with most assets still in early development or in the planning stage, the economics of carbon capture remain uncertain.

Eni's aggressive growth in areas outside its legacy hydrocarbon business puts it in a better position than most peers for the energy transition.

By employing the satellite model, Eni improves its competitive position, unlocks value, and ensures capital for its transition plan. Recent outside investments at attractive valuations validate the strategy.

Growing hydrocarbon production will maintain Eni's leverage to oil and gas prices even as it diversifies its business mix.

Eni’s transition to a low-carbon/renewable business could result in poor execution and capital allocation missteps, resulting in lower returns and missing out on potentially higher oil prices.

The satellite model may complicate Eni's investment case and not result in an improved valuation compared with peers that sell assets outright and return cash to shareholders.

The government’s majority stake in Eni, next to the control of the board, may result in less-than-optimal allocation of resources, especially if jobs in Italy are at stake.