The energy sector had an impressive run this year thanks to soaring oil and gas prices exacerbated by Russia’s invasion of Ukraine. The S&P 500 Energy Sector Index gained 51.5% year-to-date.
However, oil prices have floundered recently amid prospects of a global recession, the Fed’s aggressive rate hikes, and weakening oil demand. Crude oil has dipped more than 11% over the past three months.
Given the strong performance this year, analysts remain bullish and expect crude oil to hit $120 per barrel in spring 2023. The energy sector could ‘absolutely do well again’ in 2023, says Stewart Glickman, energy equity analyst at CFRA Research. Moreover, continued easing of Chinese lockdowns and an economic rebound could boost oil prices.
Investors’ interest in energy stocks is evident from the Energy Select Sector SPDR Fund’s (XLE) 52% year-to-date returns, compared to the SPDR S&P 500 ETF Trust’s (SPY) 19.3% decline.
Amid this backdrop, fundamentally sound energy stocks, Shell plc (SHEL), and TotalEnergies SE (TTE) could be ideal investments now.
Shell plc (SHEL)
SHEL is an international energy and petrochemical company headquartered in London, United Kingdom. The company is engaged in the exploration, production, refining, and marketing of oil and natural gas and the manufacturing and marketing of chemicals. Its businesses include Upstream, Integrated Gas, Renewables and Energy Solutions, and Downstream.
On November 28, SHEL’s subsidiary Shell Petroleum NV, in an agreement with Davidson Kempner Capital Management LP, Pioneer Point Partners, and Sampension, acquired Nature Energy Biogas A/S, the largest RNG producer in Europe. This acquisition is expected to increase the company’s customer base across multiple sectors and accelerate its transition to net-zero emissions.
During the fiscal third quarter, which ended September 30, 2022, SHEL’s total revenue and other income increased 60.4% year-over-year to $98.76 billion. Its adjusted earnings grew 128.9% year-over-year to $9.45 billion. The company’s adjusted EBITDA increased 59.8% year-over-year to $21.51 billion. Also, its adjusted EPS increased 145.3% year-over-year to $1.30.
For the year ending December 31, 2022, SHEL’s EPS is expected to increase 115.9% year-over-year to $10.75. Its revenue for the current year is expected to increase 50.4% year-over-year to $393.24 billion. It has surpassed the consensus EPS estimates in each of the trailing four quarters.
Over the past nine months, the stock has gained 9.4% to close the last trading session at $54.96.
SHEL’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Momentum and a B for Sentiment. Within the B-rated Energy – Oil & Gas industry, it is ranked #27 out of 92 stocks. To see the other ratings of SHEL for Growth, Value, Stability, and Quality, click here.
TotalEnergies SE (TTE)
TTE operates globally as an integrated oil and gas company through four segments: Integrated Gas, Renewables & Power; Exploration & Production; Refining & Chemicals; and Marketing & Services.
On December 5, TTE announced that it had signed a Memorandum of Understanding (MoU) with Air France-KLM to deliver more than one million cubic meters/800,000 tonnes of Sustainable Aviation Fuel (SAF) over ten years from 2023. TTE will produce the fuel at its bio-refineries. This agreement between TTE and Air France-KLM marks a significant step in their shared goal of supporting aviation sector decarbonization.
For the third quarter ended September 30, 2022, TTE’s revenue increased 32.3% year-over-year to $64.92 billion. The company’s adjusted EBITDA increased 73.7% year-over-year to $19.42 billion, while its adjusted net income grew 106.8% from the prior-year value to $9.86 billion. Also, its adjusted EPS increased 117.6% year-over-year to $3.83.
Analysts expect TTE’s EPS and revenue for the fourth quarter (ending December 31, 2022) to come in at $3.37 and $72.90 billion, indicating a growth of 32.1% and 31.8% year-over-year, respectively.
The stock has gained 21% over the past nine months and 22.6% year-to-date to close the last trading session at $59.60.
TTE’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Momentum and a B for Quality. It is ranked #26 of 92 stocks within the same industry. To see additional POWR Ratings of TTE for Growth, Value, Stability, and Sentiment, click here.
SHEL shares were trading at $55.68 per share on Monday afternoon, up $0.72 (+1.31%). Year-to-date, SHEL has gained 32.99%, versus a -18.89% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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