The energy sector is well positioned to witness significant growth, thanks to the ramped-up demand for oil and gas. Therefore, we wanted to explore the upside potential of quality oil and gas stocks, HF Sinclair Corporation (DINO) and PBF Energy Inc. (PBF).
Geopolitical crises and macroeconomic headwinds marred the overall economy last year. But on the contrary, the energy sector performed relatively well. Over the past year, the Energy Select Sector SPDR Fund (XLE) has gained 24.7%, while the broader SPDR S&P 500 ETF Trust (SPY) plummeted 7.1%.
In its Oil Market Report for February, the International Energy Agency (IEA) raised its forecast for global crude oil demand for 2023. IEA analysts project 101.9 million barrels per day (bpd), an increase of 200,000 bpd from the agency’s January report.
Morgan Stanley (MS) expects oil demand to rise by 1.9 million bpd in 2023, up from an earlier forecast of demand growth amounting to 1.4 million bpd, citing China's economic reboot and higher demand for air travel.
On the one hand, Goldman Sachs Group Inc.’s (GS) forecast that Brent crude may not hit $100 until the end of the year, citing reasons of higher production in Russia and the United States, which could push the market into a moderate surplus. But on the flip side, a surge in U.S. crude production over the past decade pushed exports to new heights.
U.S. crude exports will likely shape global oil prices and the financial instruments bought and sold by producers, refiners, and traders to avoid or capitalize on price swings. Peter Keavey, CME Group’s global head of energy and environmental products, commented, “We have gone from a very domestically focused market into an international powerhouse.”
Against this backdrop, it might be wise to add quality energy stocks DINO and PBF to your portfolio to garner significant returns this year.
HF Sinclair Corporation (DINO)
DINO operates as an independent energy company. It produces and markets gasoline, diesel fuel, jet fuel, renewable diesel, specialty lubricant products, specialty chemicals, specialty and modified asphalt, and others.
DINO’s board of directors declared a regular quarterly dividend of $0.40 per share, paid to the common stockholders on December 5, 2022. This reflects its shareholder return abilities.
DINO’s CEO, Michael Jennings, commented, "HF Sinclair’s solid third quarter results were driven by robust product margins and record throughputs in our refining segment. With the announcement of our new $1 billion share repurchase authorization in September, we remain fully committed to our cash return strategy and long-term payout ratio."
During the quarter, DINO returned over $951 million to its shareholders and $152 million in October 2022. The company returned over $1.1 billion since its Sinclair acquisition on March 14, 2022, more than its target of returning $1 billion to its shareholders.
In terms of forward non-GAAP P/E, DINO’s 3.53x is 53.1% lower than the 7.52x industry average. Likewise, its forward EV/Sales multiple of 0.36 is 79.2% lower than the 1.73x industry average.
For the fiscal third quarter that ended September 30, 2022, DINO’s sales and other revenues increased 126.2% year-over-year to $10.60 billion. Adjusted net income attributable to DINO stockholders grew 368.2% year-over-year to $982.94 million.
In addition, adjusted earnings per share came in at $4.58, representing a 257.8% increase from the prior-year quarter, while its adjusted EBITDA increased 267.9% year-over-year to $1.50 billion. DINO’s EBIT and net income increased at 32.9% and 39.1% CAGRs over the past three years. Over the same period, its EPS has grown at a 33% CAGR.
Analysts expect DINO’s EPS for the quarter ending March 31, 2023, to increase 120.5% year-over-year to $2.18. Its revenue for the same quarter is expected to increase 4.2% year-over-year to $7.77 billion. It surpassed the consensus EPS and revenue estimates in each of the trailing four quarters, which is impressive.
Over the past year, the stock has gained 53.2% to close the last trading session at $52.70.
DINO’s solid prospects are reflected in its POWR Ratings. The stock has an overall rating of B, equating to 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 Growth and Momentum and a B for Value and Quality. In the B-rated 91-stock Energy – Oil & Gas industry, it is ranked #15.
Beyond what we’ve stated above, we’ve also rated DINO for Stability and Sentiment. Get all DINO ratings here.
PBF Energy Inc. (PBF)
PBF refines and supplies petroleum products. The company operates in two segments, Refining and Logistics. It produces gasoline, ultra-low-sulfur diesel, heating oil, diesel fuel, jet fuel, lubricants, petrochemicals, asphalt, unbranded transportation fuels, and other petroleum products.
On January 3, PBF announced that its indirect subsidiary, PBF Logistics LP, delivered a notice of full redemption of the $525 million in aggregate principal amount outstanding of its 6.875% Senior Notes due 2023, which was redeemed on February 3, 2023, at a redemption price of 100%, plus accrued and unpaid interest to the date of redemption.
On February 16, 2023, Eni Sustainable Mobility and PBF announced that they had entered into definitive agreements to partner in a 50-50 joint venture, St. Bernard Renewables LLC (SBR), for the biorefinery currently under construction co-located with PBF's Chalmette Refinery in Louisiana. The strategic partnership should leverage the experience and expertise of Eni Sustainable Mobility and PBF.
On February 16, PBF announced the payment of a quarterly dividend of $0.20 per share of Class A common stock on March 16, 2023. This reflects the cash generation abilities of the company.
In terms of forward non-GAAP P/E, PBF’s 4.61x is 38.8% lower than the 7.52x industry average. Likewise, its forward EV/Sales multiple of 0.17 is 90.2% lower than the 1.73x industry average.
PBF’s revenues came in at $10.85 billion for the fiscal fourth quarter that ended December 31, 2022, representing a 31.6% year-over-year growth. Its adjusted EBITDA grew 145.2% from the prior-year quarter to $1.04 billion. Its income from operations rose 228.3% from the same quarter of the prior year to $955.60 million.
PBF’s adjusted fully-converted net income (excluding special items) came in at $582.90 million and $4.41 per share, representing an increase of 271.7% and 244.5% year-over-year, respectively. PBF’s EBIT and net income increased at 123.1% and 108.1% CAGRs over the past three years. Over the same period, its EPS has grown at a 105.2% CAGR.
Analysts expect PBF’s revenue for the fiscal first quarter ending March 2023 to be $8.27 billion. The company’s EPS for the same quarter is expected to increase 627.5% from the prior-year quarter to $2.55. It surpassed the consensus revenue estimates in each of the four trailing quarters.
PBF has gained 138.8% over the past year to close its last trading session at $42.75. It has gained 17.1% over the past six months.
It is no surprise that PBF has an overall B rating, which translates to Buy in our POWR Ratings system. The stock has an A grade for Value and Momentum and a B for Growth and Quality. It is ranked #9 within the same industry.
Click here to access additional POWR Ratings for Stability and Sentiment for PBF.
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DINO shares were unchanged in premarket trading Thursday. Year-to-date, DINO has gained 1.56%, versus a 4.77% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
2 Oil and Gas Stocks With Major Upside Potential StockNews.com
