Despite lingering challenges, OPEC maintains a positive outlook for the oil market’s future, given solid energy demand worldwide. Also, oil prices continued their year-end surge this Tuesday amid rising fears that tensions in the Mideast could disrupt oil supply coupled with hopes of rate cuts that could drive economic growth and fuel demand.
Given the backdrop, it could be wise to invest in fundamentally sound energy stock NGL Energy Partners LP (NGL) for steady momentum. However, investors could hold Halliburton Company (HAL) and Pembina Pipeline Corporation (PBA) and wait for a better entry point in these stocks.
Despite several economic headwinds, the Organization of the Petroleum Exporting Countries (OPEC) maintains an optimistic stance for the oil market’s future. It attributes recent declines in oil prices to speculative actions and overblown concerns. In 2024, OPEC expects world oil demand to rise by 2.25 million bpd, highlighting that robust global GDP growth will support crude demand.
American oil output now climbed to all-time levels as it continues to meet rising demand at home and around the world. According to S&P Global Commodity Insights, the U.S. has become history’s biggest oil producer. Production of crude and condensate hit a new global record of 13.3 million barrels per day this quarter. That is part of a record 21.4 million bpd for total U.S. liquids production.
“Not only is the United States producing more oil than any country in history, but the amount of oil (crude oil, refined products and natural gas liquids) that it is exporting is near the total production of Saudi Arabia or Russia,” said Jim Burkhard, vice president and head of research for oil market, energy, and mobility.
Surging energy demand globally will contribute to the growth of the oilfield services market. Moreover, advancements in drilling technology represent a primary change in the oilfield services sector. The global oilfield services market is expected to reach $346.45 billion by 2027, expanding at a CAGR of 6.6% during the forecast period (2023-2027).
Rapid technological advancements have positively impacted exploration and production activities in the energy industry. Oil and gas companies are increasingly integrating advanced technologies like AI, machine learning, automation, IoT, and big data analytics, leading to improved efficiency, lower costs, and achieving decarbonization.
Given the industry’s bright prospects, investing in fundamentally strong energy stock NGL could be wise for solid momentum. However, it seems prudent to hold HAL and PBA and wait for a better entry point in these stocks.
Let’s discuss the fundamentals of these stocks in detail:
Stocks to Hold:
Halliburton Company (HAL)
HAL provides products and services to the energy industry internationally. The company operates through Completion and Production; and Drilling and Evaluation segments. It offers production enhancement services like stimulation and sand control services; cementing services such as well bonding and casing, and casing equipment; and pipeline and process services.
On November 7, HAL and Sekal AS announced an agreement to jointly offer leading well construction automation solutions as part of a long-term strategy to deliver fully automated drilling operations.
Under the deal, HAL and Sekal will collaborate on various technologies and services incorporating Halliburton digitally integrated, well-construction solutions and the Sekal DrillTronics automation platform. Also, both companies’ remote operations centers will provide expertise and support to these offerings.
On November 6, HAL and Oil States Industries, Inc. announced a strategic partnership that combines two award-winning technology sets to offer innovative deepwater managed pressure drilling (MPD) solutions to customers. MPD provides operators with improved control when navigating narrow pressure windows compared to conventional drilling.
“MPD is a priority for offshore drillers,” said Daniel Casale, vice president, Testing & Subsea, Halliburton. “Combining our world-class services, control systems, digital platform, and training with Oil States’ integrated riser joint provides an innovative deepwater MPD solution to our customers.”
HAL’s trailing-12-month ROCE and ROTC of 31.40% and 14.17% are favorably higher than the industry averages of 19.99% and 9.30%, respectively. But the stock’s trailing-12-month gross profit margin and EBITDA margin of 18.35% and 21.47% are lower than the respective industry averages of 47.32% and 21.73%.
In terms of forward EV/Sales, HAL is trading at 1.72x, 16.8% lower than the industry average of 2.07x. However, the stock’s forward non-GAAP P/E and EV/EBITDA multiples of 11.89 and 7.81 are higher than the industry averages of 10.13 and 5.42, respectively.
For the third quarter ended September 30, 2023, HAL’s revenue increased 8.3% year-over-year to $5.80 billion. Its operating income rose 22.6% from the year-ago value to $1.04 billion. Adjusted net income attributable to the company grew 31.6% from the prior year’s period to $716 million. The company’s adjusted net income per share was $0.79, an increase of 31.7% year-over-year.
But as of September 30, 2023, the company’s cash and equivalents reduced to $2.04 billion, compared to $2.35 billion as of December 31, 2022.
Street expects HAL’s revenue and EPS for the fiscal year (ending December 2023) to increase 13.7% and 43.1% year-over-year to $23.08 billion and $3.08, respectively. However, the company has missed the consensus revenue estimates in three of the trailing four quarters.
HAL’s stock has gained 17% over the past six months to close the last trading session at $37.05. Moreover, the stock is trading above its 200-day moving average of $36.02, indicating an uptrend.
HAL’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall rating of C, which translates to a Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
HAL has a B grade for Momentum. It also has a C grade for Value, Quality, and Sentiment. It has ranked #19 out of 49 stocks in the Energy - Services industry.
To see the other ratings of HAL for Growth and Stability, click here.
Pembina Pipeline Corporation (PBA)
Headquartered in Calgary, Canada, PBA offers energy transportation and midstream services. The company operates through three segments: Pipelines; Facilities; and Marketing & New Ventures. It operates conventional oil sands and heavy oil, and transmission assets, and provides infrastructure that offers customers with natural gas, condensate, and natural gas liquids.
On December 13, PBA entered an agreement with Enbridge Inc. to acquire all of Enbridge’s interests in the Alliance, Aux Sable, and NRGreen joint ventures. This acquisition complements Pembina’s strategy of offering access to world-class, long-life resources from the Western Canadian Sedimentary Basin to premium end markets and enhances exposure to lighter hydrocarbons.
This strategic acquisition is anticipated to be leverage-neutral, ensuring PBA’s continued financial flexibility to fund future products and improving its free cash flow position. It is expected to close in the first half of the next year.
PBA’s trailing-12-month levered FCF margin of 11.75% is 100.44% higher than the 5.86% industry average. However, its trailing-12-month gross profit margin and EBITDA margin of 26.34% and 26.15% are lower than the industry averages of 47.32% and 34.76%, respectively.
In terms of forward non-GAAP PEG, PBA is trading at 1.51x, 18.6% lower than the industry average of 1.85x. However, the stock’s forward EV/EBITDA multiple of 10.19 is 88.1% higher than the industry average of 5.42. Also, its forward Price/Sales of 2.85x is 97.7% higher than the industry average of 1.44x.
In the third quarter that ended September 30, 2023, PBA’s net revenue increased 4.2% year-over-year to $1.07 billion, but its gross profit came in at $659 million, down 24.6% year-over-year. Also, the company’s earnings were $346 million, or $0.57 per common share, compared to $1.83 billion, or $3.23 per common share in the previous year’s period, respectively.
However, PBA’s adjusted EBITDA increased 5.6% from the year-ago value to $1.02 billion. The company’s adjusted cash flow from operating activities was $659 million, up 12.1% year-over-year.
Analysts expect PBA’s revenue for the fiscal year (ending December 2023) to decline 22.6% year-over-year to $6.63 billion. But for the fiscal year 2024, the company’s revenue and EPS are estimated to grow 6.8% and 13.2% year-over-year to $7.08 billion and $4.25, respectively.
PBA’s stock has gained 5% over the past month and 12.9% over the past six months to close the last trading session at $34.61. Also, the stock is trading above its 50-day and 200-day moving averages of $32.32 and $31.52, respectively, indicating an uptrend.
PBA’s POWR Ratings reflect this mixed outlook. The stock has an overall rating of C, which translates to a Neutral in our proprietary rating system.
The stock has a B grade for Momentum. It has a C grade for Quality, Value, and Sentiment. PBA is ranked #19 out of 4 stocks in the Foreign Oil & Gas industry.
In addition to the POWR Ratings I’ve just highlighted, you can see PBA’s ratings for Growth and Stability here.
Stock to Buy:
NGL Energy Partners LP (NGL)
NGL is a diversified midstream energy company that engages in the transportation, treating, storage, and marketing of crude oil, natural gas liquids, refined petroleum products, and water solutions. The company operates through three segments, including Water Solutions; Crude Oil Logistics; and Liquids Logistics.
On December 6, NGL announced the start of a binding open season for its wholly owned affiliate Grand Mesa Pipeline, LLC’s crude oil pipeline. This open season will close on January 5, 2024. Grand Mesa offers takeaway capacity for crude oil producers in the Denver-Julesburg Basin.
The pipeline can receive and batch transport up to 150,000 barrels per day for delivery into the Cushing hub, which affords its shippers access to both U.S. Midcontinent refining and trading markets along with the Texas Gulf Coast refinery complex. NGL is holding this open season to contract available capacity on the Grand Mesa pipeline at a discounted rate.
In terms of forward EV/Sales, NGL is trading at 0.57x, 72.55% lower than the industry average of 2.07x. Likewise, the stock’s forward Price/Sales multiple of 0.09 is 93.8% higher than the industry average of 1.44.
During the fiscal 2024 second quarter ended September 30, 2023, NGL’s revenues from the Water Solutions segment increased 19.6% year-over-year to $197.24 million. Its operating income rose 25.1% from the year-ago value to $86.03 million. Its adjusted EBITDA grew 23.9% year-over-year to $176.21 million.
Furthermore, the company’s net income rose 684.2% from the prior year’s period to $28.29 million. Its distributable cash flow came in at $112.38 million, up 41.2% year-over-year.
In its latest earnings release, NGL announced that its Water Solutions segment continued to outperform. Hence, the company raised its full-year 2024 adjusted EBITDA guidance for this segment to $500 million plus. Consequently, the company has revised its fiscal 2024 adjusted EBITDA guidance for this segment to above $500 million.
Analysts expect NGL to report an EPS of $0.23 in the current year ending March 2024, compared to a loss per share of $0.56 in the previous year. In addition, the company’s EPS is expected to grow 3% per annum over the next five years.
Shares of NGL have surged 36% over the past six months and 398.9% over the past year to close the last trading session at $5.40. Moreover, the stock is currently trading above its 50-day and 200-day moving averages of $4.31 and $3.72, respectively, indicating an uptrend.
NGL’s strong prospects are reflected in its POWR Ratings. The stock has an overall rating of B, translating to a Buy in our proprietary rating system.
NGL has an A grade for Growth and a B for Value and Momentum. It is ranked #4 out of 26 stocks within the A-rated MLPs - Oil & Gas industry.
Click here to access additional NGL ratings for Stability, Sentiment, and Quality.
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HAL shares were unchanged in premarket trading Wednesday. Year-to-date, HAL has declined -4.14%, versus a 26.27% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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