Potential for Repsol

Repsol 's stock has been steadily rallying over the last couple of years. Conditions on a macro level have improved with oil prices now touching $60, a 30-month high since its fall in price in 2015. Repsol has posted good 3rd quarter earnings. Net Profit has risen by 88% Y-o-Y as the oil price stands above the breakeven mark. As a result of improved operational performance, net debt has reduced by EUR 500 million, and now stands at EUR 7 billion. Downstream in particular has done well, since supply disruptions arising from weather-related events like Hurricane Harvey have affected supply and pushed up refining margins.

Analysts maintain a positive outlook for Repsol , as it has improved its credit rating from BBB- to BBB. While overall profits have increased, Repsol 's management remains cautious as further commodity price increases are not expected and the focus is on improving the balance sheet. Upstream business is also not doing great, reporting a loss and expected to do so in the near future as well.

Repsol 's valuation seems very reasonable, trading at a P/E ratio of a shade below 12x when compared to Eni SpA's 30x and Total's 17x. The energy sector's industry average is about 22x. We estimate the fair value at EUR 30. The stock is heavily dependent on oil and gas prices, which are expected to remain in the range of $50-$60.

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