Amid increasing demand and limited supply, the oil and gas industry is expected to show resilience with rising oil prices. Given this backdrop, the fundamentally robust energy stocks Marathon Petroleum Corporation (MPC), DNOW Inc. (DNOW), and Matrix Service Company (MTRX) could be wise portfolio additions now.
Oil prices recently rose, with Brent crude oil surging past $87 on Monday amid Russia’s retaliatory attacks on Ukraine’s energy installations, the Russian government's orders to curb oil output, and failed mediation in the Israel-Gaza conflicts. Additionally, analysts foresee tightening supply amid OPEC+ extended production cuts.
Amid projections of supply constraints, strong global oil demand growth for 2024 and 2025 could further increase oil and gas prices in the future. OPEC forecasts that oil demand could surge by 2.25 million bpd in 2024 and 1.85 million bpd in 2025, and global economic growth, which could support oil demand, is expected at 2.8% in 2024 and 2.9% in 2025. Morgan Stanley raised its Brent oil price forecasts by $10 per barrel to $90 for the fiscal third quarter of 2024.
Furthermore, energy stocks outperformed the broader market in 2024, evidenced by the Energy Select Sector SPDR Fund’s (XLE) 11.2% gain, compared to SPDR S&P 500 ETF Trust’s (SPY) 9.7% gain over the same period.
With these favorable trends in mind, let's delve into the fundamentals of the three energy sector stock picks.
Marathon Petroleum Corporation (MPC)
MPC operates as an integrated downstream energy company primarily in the U.S. through Refining & Marketing and Midstream segments.
On March 11, MPC paid shareholders a dividend of $0.83 per share on common stock. The company pays an annual dividend of $3.30 per share, translating to a dividend yield of 1.65% on the current share price. Its four-year average yield is 3.62%. Over the past three and five years, MPC’s dividend payments have grown at CAGRs of 10.7% and 10.5%, respectively.
Additionally, in the fourth quarter that ended December 31, 2023, the company returned approximately $2.80 billion of capital to shareholders through $2.50 billion of share repurchases and $311 million of dividends. Through January 26, the company repurchased an additional $0.90 billion of company shares. The company currently has approximately $5.90 billion available under its share repurchase authorizations.
MPC’s trailing-12-month cash from operations of $14.12 billion is significantly higher than the industry average of $669.37 million. Its trailing-12-month ROCE, ROTC, and ROTA of 37.12%, 13.88%, and 11.26% are 109.9%, 66.8%, and 71.4% higher than the industry averages of 17.68%, 8.32%, and 6.57%, respectively.
For the fiscal fourth quarter that ended December 31, 2023, MPC’s total revenues and other income, and income from continuing operations stood at $36.82 billion and $2.40 billion, respectively.
Moreover, its adjusted EBITDA from continuing operations stood at $3.53 billion. For the same quarter, its adjusted net income attributable to MPC and adjusted income per share stood at $1.51 billion and $3.98, respectively.
Street expects MPC’s revenue and EPS for the fiscal first quarter ending March 2024 to be $33.06 billion and $2.11, respectively. The company surpassed consensus EPS estimates in each of the trailing four quarters and consensus revenue estimates in three of the trailing four quarters, which is impressive.
The stock has gained 79% over the past nine months to close the last trading session at $199.83. Over the past year, it has gained 60.3%.
MPC’s solid fundamentals are reflected in its POWR Ratings. 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 Momentum, Sentiment, and Quality. Within the Energy - Oil & Gas industry, it is ranked #5 out of 83 stocks.
To see additional POWR Ratings for Growth, Value, and Stability for MPC, click here.
DNOW Inc. (DNOW)
DNOW distributes downstream energy and industrial products for petroleum refining, chemical processing, LNG terminals, power generation utilities, and industrial manufacturing operations in the U.S., Canada, and internationally. It operates under the DistributionNOW and DNOW brands.
On March 12, DNOW completed its all-cash acquisition of Whitco Supply, LLC, after concluding the regulatory approval process and other customary closing conditions. The acquisition enhances DNOW's capabilities and position in the midstream, E&P, and targeted adjacent markets that have been core to the company’s growth strategy while increasing the company’s earnings and free cash flow capacity. Capital deployment strategically aligns with and reinforces the company’s commitment to increase long-term value for its shareholders and stakeholders.
DNOW’s trailing-12-month asset turnover ratio of 1.63x is 105.1% higher than the industry average of 0.79x. Its trailing-12-month ROCE, ROTC, and ROTA of 25.55%, 9.10%, and 16.15% are 111.3%, 29.7%, and 233.3% higher than the industry averages of 12.09%, 7.02%, and 4.85%, respectively.
For the fiscal fourth quarter that ended December 31, 2023, DNOW’s revenue increased 1.5% year-over-year to $555 million, while its operating profit stood at $32 million. Moreover, its non-GAAP EBITDA excluding other costs stood at $44 million.
For the same quarter, non-GAAP net income attributable to DNOW excluding other costs and non-GAAP earnings per share attributable to DNOW stockholders excluding other costs stood at $24 million and $0.22, respectively.
Street expects DNOW’s revenue and EPS for the fiscal year ending December 2024 to increase 2.8% and 6.4% year-over-year to $2.39 billion and $1.03, respectively. The company surpassed consensus revenue and EPS estimates in three of the trailing four quarters.
The stock has gained 45.9% over the past nine months to close the last trading session at $15.13. Over the past year, it has gained 42.9%.
DNOW’s robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system.
DNOW has an A grade for Value and Momentum and a B for Quality. Within the Energy - Services industry, it is ranked #4 out of 50 stocks.
Beyond what we’ve stated above, we have also rated the stock for Growth, Stability, and Sentiment. Get all ratings of DNOW here.
Matrix Service Company (MTRX)
MTRX engineers, fabricates, constructs, and provides maintenance services to support critical energy infrastructure and industrial markets in the U.S., Canada, and internationally. It operates through three segments: Utility and Power Infrastructure; Process and Industrial Facilities; and Storage and Terminal Solutions.
On March 19, due to significant demand across Europe for infrastructure supporting sustainable energy resources, MTRX’s subsidiary, Matrix PDM Engineering, signed a Memorandum of Understanding with Engicon nv (Geldof), headquartered in Harelbeke, Belgium, allowing the team to jointly provide total engineering, procurement, and construction solutions for ammonia storage across Europe.
MTRX’s relationship with Geldof provides customers across Europe with world-class storage and terminal solutions for ammonia, which is also used as a hydrogen carrier, and brings additional strength to their partnership offerings in technology and construction to meet the increasing global demand for more sustainable energy resources.
MTRX’s trailing-12-month asset turnover ratio of 1.82x is 128.6% higher than the industry average of 0.79x.
For the fiscal second quarter that ended December 31, 2023, MTRX’s revenue stood at $175.04 million. Moreover, its gross profit stood at $10.59 million, compared to a gross loss of $1.30 million in the year-ago quarter.
As of December 31, 2023, MTRX’s total current assets and accounts payable amounted to $267.31 million and $61.89 million, compared to $262.26 million and $76.37 million as of June 30, 2023, respectively.
Street expects MTRX’s revenue for the fiscal third quarter ending March 2024 to increase 4.5% year-over-year to $195.29 million.
The stock has gained 171% over the past year to close the last trading session at $13.09. Over the past nine months, it has gained 135.4%.
MTRX’s POWR Ratings reflect its positive prospects. The stock has an overall B rating, equating to Buy in our proprietary rating system.
MTRX has a B grade for Growth, Momentum, and Sentiment. Within the Energy - Services industry, it is ranked #5.
Click here for the additional POWR Ratings for MTRX (Value, Stability, and Quality).
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MPC shares rose $0.09 (+0.05%) in premarket trading Tuesday. Year-to-date, MPC has gained 35.35%, versus a 9.69% rise in the benchmark S&P 500 index during the same period.
About the Author: Neha Panjwani
From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance.
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