The increasing oil and gas exploration and drilling endeavors to meet the heightened global energy demand provide a solid foundation for the energy industry's growth in the foreseeable future. Additionally, a constrained supply could trigger an oil price rise, cementing a sustained momentum for key players within the sector.
This scenario could invigorate investment interest in the sector, particularly targeting companies best positioned to reap significant profits. Against this backdrop, quality energy stocks Liberty Energy Inc. (LBRT), Delek US Holdings, Inc. (DK), and Precision Drilling Corporation (PDS) could be solid buys now to capitalize on the industry tailwinds.
Let’s first briefly discuss the energy sector’s dynamics before analyzing the fundamentals of the stocks.
Despite the global push toward sustainable energy resources, the demand for oil and gas remains resilient, with future projections indicating an increased consumption of these non-renewable fuels.
The International Energy Agency (IEA) has revised its oil demand growth forecast in 2023 to 2.4 million barrels per day (bpd) and 930,000 bpd for 2024, while OPEC foresees oil demand soaring by 2.5 million bpd in 2023, potentially expanding by 2.25 million bpd by 2024.
The forecasted swell in demand spurs exploration and production companies to uncover new oil reserves. Industry services like drilling, completion, production, and well interventions crucial to fulfilling the demand offer promising opportunities for prominent energy corporations.
Drilling activity demonstrates an upward trend, evidenced by the rising rig count for a second consecutive week. The global oilfield services market is expected to reach $550.09 billion by 2032, growing at a CAGR of 6.5%.
Geopolitical turmoil, like the ongoing Russia-Ukraine and Israel-Hamas conflicts, oil spills in the Gulf of Mexico, and Saudi Arabia and Russia’s supply cuts, could sustain elevated oil prices and create a conducive climate for oil exploration and production endeavors.
Considering these conducive trends, let's look at the fundamentals of the three energy stocks, starting with number 3.
Liberty Energy Inc. (LBRT)
LBRT offers hydraulic services and related technologies to onshore oil and natural gas exploration and production companies in North America. The company provides hydraulic fracturing and complementary services like wireline services, proppant delivery solutions, data analytics, related goods, and technologies.
On October 17, LBRT’s board of directors declared a quarterly dividend of $0.07 per share of class A common stock, a 40% increase from the prior quarter's dividend. It is payable to the shareholders on December 20, 2023.
Its annualized dividend rate of $0.28 per share translates to a dividend yield of 1.43% on the current share price. Its four-year average yield is 0.96%. LBRT’s dividend payments have grown at CAGRs of 26% and 32% over the past three and five years, respectively.
The company returned $38 million to shareholders through share repurchases and a quarterly cash dividend. During the quarter that ended September 30, 2023, LBRT repurchased and retired 1,784,899 shares of Class A common stock at an average of $16.38 per share, representing 1% of shares outstanding, for approximately $29 million.
The company has cumulatively repurchased and retired 10.6% of shares outstanding at program commencement on July 25, 2022. The total remaining authorization for future common share repurchases is approximately $211 million.
LBRT’s trailing-12-month asset turnover ratio of 1.75x is 218.8% higher than the industry average of 0.55x. Its trailing-12-month ROCE, ROTC, and ROTA of 38.63%, 25.76%, and 19.97% are 93.8%, 177%, and 171.4% higher than the industry averages of 19.94%, 9.30%, and 7.36%, respectively.
For the fiscal third quarter that ended September 30, 2023, LBRT’s revenue increased 2.3% year-over-year to $1.22 billion. Its operating income grew 12.2% from the year-ago quarter to $205.23 million. Also, the company’s adjusted EBITDA stood at $319.21 million, up 15.3% year-over-year.
Furthermore, net income attributable to LBRT stockholders was $148.61 million and $0.85 per share, representing increases of 1.1% and 9% from the prior year quarter, respectively.
Street expects LBRT’s revenue and EPS for the fiscal year ending December 2023 to increase 14.7% and 25.1% year-over-year to $4.76 billion and $3.27, respectively. The company surpassed consensus revenue and EPS estimates in three of the trailing four quarters, which is impressive.
The stock has gained 56.2% over the past six months to close the last trading session at $19.57. Over the past nine months, it has gained 28.3%.
LBRT’s POWR Ratings reflect its positive prospects. The stock has an overall B rating, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has a B grade for Value and Momentum. Within the 49-stock Energy-Services industry, it is ranked #7.
For LBRT’s additional POWR Ratings for Growth, Stability, Sentiment, and Quality, click here.
Delek US Holdings, Inc. (DK)
DK engages in the integrated downstream energy business in the United States. The company operates through three segments: Refining; Logistics; and Retail.
On November 20, DK paid a quarterly dividend of $0.24 per share. Its annualized dividend of $0.96 per share translates to a dividend yield of 3.53% on the current share price. Its four-year average yield is 3.30%.
During the third quarter, DK returned $40.2 million to shareholders through dividends and share buybacks and returned $130.3 million of capital year-to-date. In addition, it repurchased $20 million in shares.
DK’s trailing-12-month asset turnover ratio of 2.13x is 289.7% higher than the industry average of 0.55x, while its trailing-12-month cash per share of $13.94 is significantly higher than the industry average of $0.90.
In the fiscal third quarter that ended September 30, 2023, DK’s net revenues stood at $4.75 billion, while operating income increased 324% year-over-year to $224.70 million. Moreover, its adjusted EBITDA stood at $345.10 million.
For the same quarter, adjusted net income and adjusted net income per share stood at $131.90 million and $2.02, respectively. As of September 30, 2023, DK’s total long-term debt stood at $2.64 billion, compared to $3.05 billion as of December 31, 2022.
Street expects DK’s revenue and EPS in the fiscal fourth quarter ending December 2023 to be $3.29 billion and $0.06, respectively. The company surpassed consensus revenue and EPS estimates in each of the trailing four quarters.
The stock has gained 17.4% over the past six months to close the last trading session at $27.23. Over the past nine months, it has gained 8.2%.
DK’s promising prospects are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.
It has an A grade for Growth and a B for Value. It is ranked #18 within the 85-stock Energy – Oil & Gas industry.
Beyond what we have highlighted above, one can see DK’s ratings for Momentum, Stability, Sentiment, and Quality here.
Precision Drilling Corporation (PDS)
Headquartered in Calgary, Canada, PDS provides onshore drilling, completion, and production services primarily to oil and natural gas and geothermal exploration and production companies in North America and the Middle East. The company operates through two segments: Contract Drilling Services and Completion and Production Services.
In November, PDS acquired CWC Energy Services Corp. for C$127 million ($93.55 million). CWC’s total consideration included 947,807 PDS common shares, roughly C$14 million ($10.31 million) cash, and the undertaking of CWC’s net debt of approximately C$38 million ($27.99 million), excluding transaction costs.
The strategic acquisition is set to position PDS as a leading well service provider within Canada and optimize its drilling operations in Canada and the U.S. markets. With the expected synergies from the transaction, PDS anticipates accretion on a 2024 cash flow per share basis and believes this move will support its continuous deleveraging plan.
As of September 30, the company reduced its total debt by C$126 million ($92.82 million) and returned C$13 million ($9.58 million) to shareholders through share repurchases.
PDS’ trailing-12-month cash per share of $2.65 is 193.9% higher than the industry average of $0.90, while its trailing-12-month asset turnover ratio of 0.68x is 23.7% higher than the industry average of 0.55x.
In the fiscal third quarter that ended September 30, 2023, PDS’ revenue increased 4.1% year-over-year to C$446.75 million ($329.10 million), while adjusted EBITDA stood at C$114.58 million ($84.40 million). Also, cash provided by operations stood at C$88.50 million ($65.19 million), an increase of 987% year-over-year.
Furthermore, the company’s net earnings and net earnings per share came at C$19.79 million ($14.58 million) and C$1.45, respectively. As of September 30, 2023, PDS’ total current assets stood at C$477.40 million ($351.68 million), compared to C$470.67 million ($346.72 million) as of December 31, 2022.
Street expects PDS’ EPS in the fiscal fourth quarter ending December 2023 to increase 921.3% year-over-year to $2.05. Its revenue is expected to be $363.57 million. The company surpassed consensus revenue estimates in three of the trailing four quarters.
The stock has gained 29.9% over the past six months to close the last trading session at $57.79. Over the past nine months, it has gained 1.4%.
It’s no surprise that PDS has an overall rating of B, which equates to Buy in our proprietary rating system.
It has a B grade for Growth, Value, and Momentum. Within the 15-stock Energy - Drilling industry, it is ranked first.
In addition to the POWR Ratings we stated above, we have also given PDS ratings for Stability, Sentiment, and Quality. Get all PDS ratings here.
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LBRT shares were unchanged in premarket trading Thursday. Year-to-date, LBRT has gained 23.45%, versus a 20.19% 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.
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