Oil prices are surging as the Russia-Ukraine conflict intensifies. As of this writing, Brent oil futures for May are hovering around $96 a barrel, up 3.2% from Monday, while West Texas Intermediate futures for April are up 5% to $95 a barrel.
But the price of oil will continue to rise in the coming months regardless of the relationship between Ukraine and Russia.
As the global economy continues to emerge from the pandemic, activities, especially air travel (as we approach the high season), will recover, leading to an increase in oil demand. This situation, coupled with limited supply, is likely to result in rising fossil fuel prices.
Investors are aware of the situation and are trying to take advantage of higher oil prices as much as possible, leaving no stone unturned. One way to do this is to add to positions in energy stocks, picking those that usually benefit from higher fossil fuel prices while trying not to overpay to ensure the highest possible return.
Therefore, investors may want to consider shares of Italian oil and gas giant Eni SpA (E, Financial), whose shares were changing hands at $30.40 at close on Friday for a market capitalization of $53.80 billion and a price-earnings ratio of 32.47.
The energy giant runs profitable activities consisting of exploration and production on a total of 6.91 billion barrels of oil equivalent stored in proved mineral reserves of crude oil and natural gas.
Thanks to the operation of thermoelectric and renewable systems with a total installed capacity of 4.6 gigawatts, the integrated energy supplier is also active in the retail and wholesale distribution of electricity.
In terms of profitability, the Ebitda margin, the most meaningful financial metric for operators in the capital-intensive industry, says Eni's business has a yield of 26.3%, which is around the industry median.
However, unlike most competitors, the company offers its revenue and Ebitda at much more attractive valuations, as indicated by its enterprise value-to-Ebitda ratio of 3.81 (versus the industry median of 8.29) and its enterprise value-to-revenue ratio of 0.99 (versus the industry median of 2.27).
When the price of Brent oil hit $110 a barrel, Eni said its consolidated Ebitda of $19.2 billion was the best performance ever achieved in the past 10 years. Strong execution across the portfolio allowed the company to free up 45% of the profit line into cash flow to be used for green projects as well as funding dividend payments and share buybacks. The company has also deleveraged its balance sheet as its indebtedness ratio came in at 20% in 2021, down 11 percentage points from 2020.
With oil and gas prices rising, the integrated energy giant should unlock more value for the company and shareholders through dividends and additional buybacks. The latter will act as a catalyst for potentially higher share prices.
That potential isn't expensive as the stock currently trades slightly above the 50-day moving average of $29.15, while the trailing dividend yield of 5.2% significantly outperforms the S&P 500's 1.39%. Plus, the outlook for fossil fuels and the company appear to be favorable.
