Equinor's Q1 Earnings Show Benefit of High Oil and Gas Prices; Shares Undervalued

High oil and gas prices drove a stellar first quarter for Equinor as quarterly adjusted earnings soared to $18.0 billion before tax and $5.2 billion after tax, compared with $4.1 billion and $1.3 billion, respectively, the year before. Equinor posted free cash flow (operating cash flow including working capital less capital investment) of $13.6 billion during the quarter compared with $3.8 billion the year before. Given the strong financial performance, Equinor will move forward with the next tranche of its $5 billion repurchase plan for 2022 with $1.33 billion in repurchases and continuation of the extraordinary quarterly dividend of $0.20 per share. We expect Equinor to fully execute on its previously announced repurchase and dividend plans, implying $10 billion of total distribution for 2022 or about 9% of its current market capitalization. Our fair value estimate and moat rating are unchanged. We recently increased our fair value estimate to incorporate the strong commodity price environment, leaving the shares trading at a discount currently.