LNG And Renewables Will Fuel A Robust Global Energy Renaissance

Key Takeaways

• High-return oil and gas projects, digital optimization, and disciplined portfolio management signal potential for stronger margins and revenue growth than anticipated by the market.
  
• Accelerated expansion in renewables and LNG, plus strategic integration of power assets, sets the stage for a more resilient, higher-multiple business model.
  
• Structural decline in oil and gas demand, technological disruption, fierce competition, weak refining margins, and renewables transition challenges threaten long-term profitability and revenue growth.

Catalysts

A multi-energy company, produces and markets oil and biofuels, natural gas, biogas and low-carbon hydrogen, renewables, and electricity in France, rest of Europe, and internationally.

• While analyst consensus sees a robust outlook for TotalEnergies' oil and gas cash flows and production growth at around 3% per year, the current acceleration of high-return projects-such as early delivery at Mero-4 and consistent portfolio upgrades-suggests these cash flows and margin improvements could be materially higher, driving both stronger EBITDA and net margin upside than the market expects through the decade.
  
• Analyst consensus highlights strong electricity growth as an offset to oil price volatility; however, Integrated Power's 28% year-over-year expansion, rapid scaling of renewables, and successful value-unlocking farm downs indicate that future cash flows and operating income from Integrated Power could grow high double-digits annually, underappreciated by the market and enabling a structurally re-rated, higher-multiple business mix over time.
  
• The active, disciplined portfolio management with tactical acquisitions in LNG and upstream, alongside timely disposals of higher-cost assets, positions TotalEnergies to capture outsized benefits from rising global energy demand and supply shortfalls, thus supporting sustained long-term revenue growth and superior capital efficiency as others face stagnation.
  
• TotalEnergies' rapid digital transformation-via global, standardized AI-driven optimization platforms in both upstream and downstream-is likely to unlock multi-hundred-million dollar annual cost savings and materially improve throughput, ensuring further margin expansion and enhanced return on capital, well ahead of industry peers.
  
• TotalEnergies' leading participation in global LNG supply and infrastructure, especially targeting Asian demand growth and leveraging its portfolio scale for contractual and destination flexibility, positions the company to benefit disproportionately from long-cycle, structurally high LNG margins, securing stable, accretive earnings and top-line resilience irrespective of oil price cycles.

TotalEnergies Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on TotalEnergies compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming TotalEnergies's revenue will grow by 4.3% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 6.8% today to 8.8% in 3 years time.
• The bullish analysts expect earnings to reach $18.6 billion (and earnings per share of $9.3) by about September 2028, up from $12.8 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 11.5x on those 2028 earnings, up from 10.5x today. This future PE is lower than the current PE for the US Oil and Gas industry at 15.5x.
• Analysts expect the number of shares outstanding to decline by 3.39% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.82%, as per the Simply Wall St company report.

TotalEnergies Future Earnings Per Share Growth

Risks

• Persistent global regulatory and policy shifts aimed at accelerating decarbonization and net-zero targets could structurally erode long-term oil and gas demand, which would negatively impact TotalEnergies' future revenues and depress utilization rates for its core hydrocarbon assets.
  
• Advancements in alternative energy technologies, such as energy storage and green hydrogen, risk making TotalEnergies' existing oil and gas infrastructure less competitive or even stranded, which could drive asset impairments and reduce returns on capital employed.
  
• TotalEnergies faces growing competition from national oil companies and independent producers with lower cost structures and preferential access to resources, potentially crowding it out of attractive new projects and pressuring the company's long-term revenue growth.
  
• Structural weakness in European refining and petrochemicals-caused by rising EV adoption, tightening emissions standards, and global overcapacity-could erode TotalEnergies' refining and chemicals profitability, as reflected by recent plant shutdowns and thin refining margins, thereby impacting group net margins.
  
• Challenges in scaling renewables profitably, including slower-than-anticipated ramp-up of renewable projects, rising interest rates, and potential regulatory changes around tax credits and tariffs (especially in the U.S.), may limit diversification benefits and keep returns on equity and operating cash flow below target levels.

Valuation

• The assumed bullish price target for TotalEnergies is €76.19, which represents two standard deviations above the consensus price target of €63.28. This valuation is based on what can be assumed as the expectations of TotalEnergies's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €77.28, and the most bearish reporting a price target of just €52.62.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $212.3 billion, earnings will come to $18.6 billion, and it would be trading on a PE ratio of 11.5x, assuming you use a discount rate of 6.8%.
• Given the current share price of €52.76, the bullish analyst price target of €76.19 is 30.8% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.