Equinor (EQNR) faces "major headwinds" on free cash flow due to the outlook for oil and Norway's corporate tax rates, RBC Capital Markets said Tuesday in a report.

"We expect the focus to remain on balance sheets, and this is where we are less constructive on Equinor than peers," RBC said. "Given the lagged nature of cash taxes in Norway, as well as the structure of Equinor's buyback program, we see gearing rising much faster than peers through the year."

"Our views on European gas remain more cautious than the forward curve suggests, and "we see the balance sheet re-levering faster, ultimately leaving the risk-reward less constructive," the report said.

RBC downgraded Equinor's stock to underperform from sector perform and cut its price target to 260 Norwegian kroner ($24.83) from 300 kroner, partly citing "execution and impairment

risk" on the Empire Wind project.

Equinor's shares "have performed resiliently over recent weeks amid the broader sell-off" as investors perceived the company as the "gas story," RBC said.

Shares of the Stavanger, Norway-based company rose 2.1% in recent Tuesday trading.

Price: 23.54, Change: +0.50, Percent Change: +2.17