Global Expansion And Renewable Energy Investments Will Drive Future Prospects

Key Takeaways

• TotalEnergies' focus on battery energy storage and renewable developments could drive revenue growth in power management.
  
• Expanding oil, gas, and LNG projects, coupled with disciplined CapEx, enhance production growth and stabilize earnings.
  
• Fluctuating LNG prices, safety concerns, and geopolitical instability could threaten TotalEnergies' revenue and profit stability, while operational and regulatory issues may impact future earnings.

Catalysts

A multi-energy company, produces and markets oil and biofuels, natural gas, green gases, renewables, and electricity in France, rest of Europe, North America, Africa, and internationally.

• TotalEnergies is building an integrated power pillar with developments in battery energy storage systems (BES), which could drive revenue growth in renewable energy and power management.
  
• The company is expanding its oil and gas projects, including major projects in Brazil, Nigeria, the U.S., Argentina, and Angola, promising future production growth and potentially increasing cash flows and revenue.
  
• LNG business commitments and contracts, such as those with Asian buyers, and investments in the U.S., Oman, and Malaysia, are expected to stabilize revenue by reducing exposure to volatile spot gas prices, enhancing earnings stability.
  
• Execution of a disciplined CapEx strategy, particularly within renewables and low-carbon projects, positions TotalEnergies for growth in high-return, low-emission projects, potentially improving net margins over time.
  
• TotalEnergies' rigorous reserve replacement and exploration strategies, such as those in Namibia and Suriname, ensure long-term resource sustainability, likely supporting cash flow growth and maintaining strong earnings contributions from upstream operations.

TotalEnergies Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming TotalEnergies's revenue will decrease by 0.4% annually over the next 3 years.
• Analysts are assuming TotalEnergies's profit margins will remain the same at 8.1% over the next 3 years.
• Analysts expect earnings to reach $16.1 billion (and earnings per share of $8.3) by about April 2028, up from $15.8 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $19.2 billion in earnings, and the most bearish expecting $13.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.1x on those 2028 earnings, up from 8.3x 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 4.12% 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

• The risk of fire and explosion in the company's new battery energy storage systems could lead to increased safety costs and potential operational disruptions, impacting net margins.
  
• Fluctuating LNG prices and lower market volatility, particularly evident with lower-than-expected trading results due to decreased LNG prices in 2024, could impact future revenue and profit stability.
  
• Significant operational issues in the refining sector, particularly in France and the U.S., have led to lower-than-expected downstream cash flow, suggesting potential risks to future earnings if such issues persist.
  
• The company's strategic focus on expanding in areas with geopolitical instability, such as Mozambique and Libya, may entail fiscal and operational uncertainties, potentially affecting financial stability and revenue flows.
  
• Regulatory shifts and supply chain issues impacting the biofuel and low-carbon energy sectors could lead to increased costs and slower growth in these areas, impacting overall revenue targets.

Valuation

• The analysts have a consensus price target of €65.702 for TotalEnergies based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €89.74, and the most bearish reporting a price target of just €54.64.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $197.9 billion, earnings will come to $16.1 billion, and it would be trading on a PE ratio of 11.1x, assuming you use a discount rate of 6.8%.
• Given the current share price of €51.68, the analyst price target of €65.7 is 21.3% 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.