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Bank of America Names TotalEnergies, Saipem as Top European Energy Picks
Bank of America has designated TotalEnergies and Saipem as its preferred investments in the European energy sector, prioritizing companies with strong fundamentals over more volatile plays. In a recent note, the investment bank highlighted firms with robust free cash flow generation and resilience against potential commodity price pressures.
BofA's Sector Thesis
Bank of America's analysts are focusing on what they term "quality over beta," selecting companies they believe offer an attractive risk-reward profile in the current market. This strategy comes as oil prices have been supported by supply disruptions and accelerated refining demand linked to geopolitical conflicts.
The bank favors companies whose financial performance can withstand a potential drop to its mid-cycle commodity price assumptions, making strong and predictable cash flow a key metric for its top selections.
Top Integrated Pick: TotalEnergies (TTE)
BofA reiterated French integrated energy company TotalEnergies as its top pick, noting the stock appears relatively underpriced compared to its peers. The bank projects that TotalEnergies is positioned to deliver superior organic volume growth and strong cash flow.
AdKey points from the bank's analysis include:
- Debt-adjusted free cash flow yields are forecast to remain above 10% into 2028.
- The company's free cash flow is expected to be the most resilient among peers if commodity prices fall to BofA's mid-cycle assumptions.
- An upcoming Capital Markets Day is anticipated to provide further visibility on cash flow growth and confirm upside to its share buyback program.
Top Services Pick: Saipem (SPM)
In the oil field services (OFS) space, BofA named Italy's Saipem as its top choice. The bank believes the OFS sector is better insulated from commodity price volatility, partly due to a strong capital expenditure upcycle in the offshore oil and gas industry.
BofA notes that rising backlogs in the sector should support margin expansion for service providers into 2030. While Saipem recently lowered its 2026 core earnings forecast to €1.75 billion, citing costs related to the Middle East crisis, the bank maintains its preference. Recent developments for Saipem include securing a contract in Indonesia valued at approximately $2 billion and receiving regulatory clearances for its proposed merger with Subsea7.
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