Energy stocks are once again a hot topic in the investment world right now, thanks to shifting demand forecasts and a continued trend toward renewables. The International Energy Agency (IEA) just reported record oil demand for June, and full-year 2023 demand is also pacing for new highs.
Meanwhile, the green energy transition has been relatively slow, leaving fossil fuels as the market leader - even as states like Texas increasingly rely on alternative energy to help power grids during this summer's brutal heat wave. The Energy Information Administration (EIA) expects that natural gas (NGU23) will remain the dominant fuel for U.S. power generation all the way up until 2035, though renewable energy sources will account for 40% of U.S. electricity generation by 2050 - up from 21% in 2020.
As oil prices (CLU23) and energy stocks return to the forefront, Marathon Oil Corporation (MRO) and New Fortress Energy Inc. (NFE) are two stocks that look particularly well-positioned in the space - and analysts seem to agree, judging by Wall Street's optimistic forecasts for these names. Here's a look at what's driving upside for MRO and NFE, and what investors can expect in the coming months.
Marathon Oil: A Leader in Oil and Gas Production
Marathon Oil is one of the leading independent exploration and production companies in the U.S. and internationally. The company engages in the exploration, production, and marketing of crude oil and condensate, natural gas liquids, and natural gas. MRO has a diversified portfolio of assets across various basins in the U.S., such as the Bakken, Eagle Ford, Permian, and Oklahoma. They've built up quite a collection of assets, and that's reflected in Marathon's market cap of $15.6 billion.
MRO has been trending higher in the past few months. The positive price action has been supported by demand for oil and gas picking up, production cuts from OPEC+, and the usual summer travel buzz. In the past three months, MRO has gained more than 17%.
On Aug. 2, MRO dropped some seriously good news when the oil major beat analysts' estimates for both revenue and earnings. Marathon raked in $287 million in net income (that's $0.48 per diluted share), compared to a $750 million loss in the same quarter last year. Plus, management is sharing the love with investors through a dividend of $0.10 per share, up from $0.03 in the previous quarter. Marathon even splurged on buying back its own shares, snapping up $100 million worth in the second quarter.
Looking ahead, MRO expects to increase production by 5% to 7% in 2023, while maintaining its capital discipline and free cash flow generation. The company also plans to invest in new technologies and innovations to enhance its operational efficiency and environmental performance.
Analysts are giving the energy giant a thumbs-up, with an average “Strong Buy rating” and a mean price target of $32.45 for the next 12 months. That price target implies a hefty 25.9% expected gain from the stock's current level. Based on the 20 analysts offering recommendations, 15 call MRO a “strong buy,” one names the stock a “moderate buy,” three maintain a “hold” rating, and there's only one “moderate sell.”
Based on these forecasts, MRO appears underappreciated by the market at current levels, and offers a compelling opportunity for investors who are looking for exposure to the energy sector.
New Fortress Energy: A Global Pioneer in Gas-to-Power Infrastructure
New Fortress Energy is an integrated gas-to-power infrastructure company that provides energy and development services to end users worldwide. The company operates in two segments: Terminals and Infrastructure, which engages in the natural gas procurement and liquefaction; and shipping, logistics, facilities, and conversion, or development of natural gas-fired power generation; and Ships, which offers floating storage and regasification units (FRSU), and liquefied natural gas (LNG) carriers.
NFE has a market cap of $5.83 billion, placing it in mid-cap territory. That suggests more growth potential than larger-cap companies, but more potential exposure to global volatility and risk than smaller-cap companies.
Unlike MRO, shares of NFE have been stuck in a negative trend lately, thanks in part to a first-quarter earnings miss reported in early May. NFE is up just 2.4% over the past few months, while the S&P 500 Index ($SPX) has gained more than 7% over the same time frame. Based on this performance, investors seem to have some doubts about the company's future prospects.
More recently, NFE reported second-quarter results on Aug. 8 - beating analysts’ estimates on revenue, but missing on earnings. The company generated $395 million of net income, or $0.58 per diluted share, compared to a net loss of $201 million, or $1.08 per diluted share, in the same quarter last year.
However, NFE expects to complete several major projects that will significantly increase its revenue and cash flow in the second half of 2023 and beyond. The company has been expanding its global footprint and diversifying its revenue streams through acquisitions and partnerships.
Let's talk milestones: New Fortress has power plants in Puerto Rico and more on the way, floating rigs for gas are getting set up, and new terminals and power plants are on the horizon. These projects are not just flash-in-the-pan initiatives; they're strategic moves intended to keep the cash flowing in with fixed payments from happy customers.
Analysts have given the energy stock their collective nod of approval. NFE has a consensus analyst rating of Strong Buy and a 12-month average price target of $47.78, which implies expected upside of 69% from current levels. Based on the nine analysts offering recommendations, six suggest a “strong buy,” one rates it a “moderate buy,” and two call it a “hold.”
Given the discrepancy between NFE's share price performance and these upbeat analyst estimates, it seems as though the market hasn't quite caught on to the stock's full potential.
What's Next for MRO and NFE?
We've got a dynamic duo here with these two stocks, each playing a special role in the energy sector. It's like having a power couple: MRO's all about oil and gas production, while NFE focuses on gas-to-power infrastructure. Together, they're like Batman and Robin in keeping the flow of energy safe, stable, and sustainable.
Both names could benefit from favorable market conditions for energy stocks, especially coupled with their solid financial performance and promising growth potential. And here's the cool part: Wall Street experts are saying the market hasn't fully recognized their true worth yet, with plenty of room for MRO and NFE to keep rising before they live up to analysts' price-target forecasts. That means potential upside ahead for savvy energy investors.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
