RBC Upgrades Equinor on Improved European Gas Price Outlook

RBC Capital Markets has upgraded Norwegian energy major Equinor ASA to Sector Perform from a previous Underperform rating, citing a more favorable environment for European natural gas prices. The bank also increased its price target on the company's stock to NOK 420 from NOK 360.

The Analyst's Thesis

The upgrade is primarily based on the expectation that European gas prices will remain elevated through 2026 and into 2027. In a note to clients, RBC attributed this outlook to prolonged outages in Qatar's liquefied natural gas (LNG) facilities and tightening gas storage levels in Europe.

Equinor is particularly sensitive to these market dynamics. RBC estimates that for every $1/mmbtu change in European gas prices, the company's 2027 cash flow from operations (CFFO) is impacted by approximately 2%. This makes it one of the most gas-sensitive stocks among its European peers, according to the bank.

A Nuanced Outlook

Despite the upgrade, RBC lowered its earnings per share (EPS) estimates for Equinor. The bank cut its 2026 EPS forecast by 12.4% to $4.16 and its 2027 estimate by 15.8% to $4.45.

Ad

These downward revisions were driven by a lower overall commodity price forecast. RBC reduced its 2026 Brent crude assumption to $80 per barrel (from $89) and its European gas price forecast to $14.2 per mmbtu (from $15.7). The upgrade reflects a view that market conditions have improved relative to previous expectations, even as absolute price forecasts have been trimmed.

Valuation and Company Factors

RBC noted that Equinor currently trades at a discount to its sector peers on a forward-looking basis. The company's stock is valued at 4.3 times its estimated 2026 EV/DACF (Enterprise Value to Debt-Adjusted Cash Flow), compared to a peer average of 4.6 times.

Key company-specific points highlighted by the bank include:

• Bay Du Nord Project: Following BP’s exit, Equinor holds a 100% interest in the capital-intensive offshore project. RBC suggested it would be prudent for the company to sell down a portion of its stake before a final investment decision.
• Production Growth: RBC's 2026 production growth estimate of 4.4% is ahead of Equinor's own guidance of 3%.
• Balance Sheet: The company's gearing is expected to decline to approximately 11% by the end of the year, providing flexibility for potential acquisitions.