Traditional oil and gas firms may also take advantage of the trend for renewables by increasing their use of renewable energy.
Wells Fargo has compiled a list of brilliant ideas, which includes BP, according to which the energy transition will be spearheaded by a huge strategic change.
“BP has reduced the size of its oil and gas exploration team and budget. “Production should steadily decline through 2030 due to dispositions and depletion,” the firm said in a note. The stock is rated overweight by Wells Fargo.
BP is one of the few oil companies that has stated a goal of reaching net-zero emissions by 2050, and CEO Bernard Looney has stated that the company will reduce oil and gas production by 40% over the next decade.
Nonetheless, Wells Fargo noted that there are investor concerns about whether this will happen. As a result, the firm chose Valero as its top pick for an oil and gas company working to reduce carbon emissions.
Wells Fargo specifically mentioned the refiner’s involvement in renewable fuels and carbon capture.
“VLO’s renewable fuel production has replaced approximately 120,000 [barrels per day] of oil-based fuels.” Furthermore, VLO’s recent announcement of plans to capture and store CO2 emissions from several of its ethanol plants opens a new door in the energy transition process,” the firm said in a report rating Valero stock as overweight.
Wells Fargo identified Enbridge Energy as a leader in the midstream sector. The company noted that it was “ahead of the energy transition curve” after constructing wind farms in 2002 and transporting renewable natural gas since 2011. Recently, the company has looked into the hydrogen market.
“Given this track record, we believe ENB is well positioned to transition to renewables over time while preserving shareholder returns,” analysts led by Michael Blum wrote. “By casting a wide net of various renewable initiatives, ENB gains expertise in determining which investments generate the highest returns and participate in parts of the energy value chain with less competition.” Enbridge stock is rated overweight by Wells Fargo.
NextEra has been a pioneer in the utility sector in terms of incorporating renewable energy, and Wells Fargo believes that early adoption positions the company for continued success.
“We believe NEE has created a significant competitive moat in onshore wind and solar,” the company stated. “We believe that existing and new entrants will struggle to match the company’s unique combination of expertise, scale, and access to low-cost capital.”
Wells Fargo has an overweight rating on NextEra shares, citing the company’s involvement in battery storage and green hydrogen as sources of future upside.
Outlining goals is one thing, but achieving them is quite another. Companies across industries are emphasizing how they are contributing to a cleaner and more equitable future right now, amid a surge in sustainable investing. It remains to be seen which names are true to their word.
The decline of FANG stocks
Analyst Justin Post forecasts the introduction of new legislation increasing the tax burden for the typical person.
Post went on to say that, while the global minimum corporate tax agreement is significant from a foreign policy standpoint, the real threat to FANG income is a hike in the domestic corporate tax rate in the United States.
The Biden administration has proposed raising that rate from 21 percent to 28 percent, but has indicated that it is open to raising it to 25 percent.
“There is a reasonable probability of average tax rates for FANGs increasing by 4 points as a result of new U.S. (assuming U.S. corporate rates move to 25 percent) and international tax legislation, resulting in 5% lower average EPS, but changes will likely take a few years, and we would anticipate some new tax optimization strategies that could offset some of the impact,” Post wrote.
Over the weekend, the Group of Seven ministers agreed to support a US proposal to require profitable corporations to pay at least 15% of their income in taxes. The G-7 leaders, which include Canada, France, Germany, and Japan, will meet in the coming days in the United Kingdom to finalize the pact.
While Treasury Secretary Janet Yellen hailed the agreement as a historic intervention to put an end to a global “race to the bottom” in corporate tax rates, it remains to be seen how other countries will react to the plan.
Some countries choose to keep their corporate tax rates low in order to attract businesses, a charge that critics have leveled against Ireland and others in the past.
However, according to Bank of America’s Post, the actual new average international tax rate could be higher than 15% if FANG profits are subject to the tax rates in each country or origin. That would imply that Facebook, for example, would face corporate rates closer to 30% in France, Germany, and Japan.