The energy industry is poised for sustainable growth driven by the stable demand for oil and gas. Although crude oil prices have remained rangebound for a while now, expectations of interest rate cuts this year, the extension of voluntary output cuts by OPEC+, a fast-recovering Chinese economy, and ongoing geopolitical tensions could bolster oil prices in the long term.
Amid this backdrop, investors could consider buying fundamentally strong energy stocks Inpex Corporation (IPXHY), Graham Corporation (GHM), and MV Oil Trust (MVO). Before exploring the fundamentals of these stocks, let’s first understand what’s shaping the energy industry’s prospects.
Despite the ongoing geopolitical tensions in the Middle East, OPEC has managed to keep oil prices stable by underutilizing their capacity. OPEC and its allies had extended voluntary supply cuts by 2.2 million bpd through the end of the second quarter.
With OPEC and its allies set to meet on June 1, many sources expect the group to extend the output cuts into the second half of 2024. Extended periods of production cuts by the major oil producers could lead to global supply shocks, thereby boosting prices.
Meanwhile, OPEC anticipates global oil demand to go up 2.25 million barrels per day (bpd) and 1.85 million bpd in 2024 and 2025, respectively, holding onto its forecasts for solid growth. Moreover, optimistic economic data from China and the U.S. have bolstered hopes for higher global demand. Additionally, expectations of rate cuts this year could help aid the demand for commodities, especially crude oil.
The global oil and gas market is expected to reach $8.57 trillion by 2030 by exhibiting a CAGR of 3.8%. Additionally, rising investments in exploration, production, and refining segments have bolstered the demand for energy services. The global energy as a service market is anticipated to reach $208.20 million by 2032 at an 11.8% CAGR.
With these favorable trends in mind, let's delve into the fundamentals of the three energy stocks.
Inpex Corporation (IPXHY)
Headquartered in Tokyo, Japan, IPXHY researches, explores, develops, produces, and sells oil, natural gas, and other mineral resources in Japan, the rest of Asia and Oceania, Europe and NIS countries, the Middle East and Africa, and the Americas.
On April 16, 2024, IPXHY announced that it had entered a comprehensive cooperation agreement with Fukaya City in Saitama Prefecture and Saitama Gas Co., Ltd to promote regional revitalization through various projects to turn Fukaya City into a sustainable city. The company supplied wholesale natural gas to city gas business operators and maintained a stable natural gas supply.
IPXHY’s trailing-12-month Return on Total Capital of 12.05% is 56.5% higher than the industry average of 7.70%. Likewise, its trailing-12-month EBIT margin and levered FCF margin of 50.38% and 35.84% are 164.9% and 483.2% higher than the industry averages of 19.02% and 6.15%, respectively.
IPXHY’s revenue for the fiscal first quarter that ended March 31, 2024, increased 3.3% year-over-year to ¥596.80 billion ($3.81 billion). Its operating profit rose 1.4% from the year-ago quarter to ¥380.10 billion ($2.43 billion). Moreover, its profit attributable to owners of parent stood at ¥121.83 billion ($778.48 million). Also, its earnings per share amounted to ¥96.76.
Analysts expect IPXHY’s revenue for the quarter ending December 31, 2024, to increase 11.9% year-over-year to $4.18 billion. Over the past year, the stock has gained 38.9%, closing the last trading session at $15.12.
IPXHY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, 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.
It has a B grade for Stability and Quality. It is ranked #12 out of 41 stocks in the A-rated Foreign Oil & Gas industry. Click here for the additional POWR Ratings of IPXHY (Growth, Value, Momentum, and Sentiment).
Graham Corporation (GHM)
GHM designs and manufactures fluid, power, heat transfer, and vacuum equipment for chemical and petrochemical processing, defense, space, petroleum refining, cryogenic, energy, and other industries.
GHM’s trailing-12-month CAPEX / Sales of 3.65% is 25.8% higher than the industry average of 2.90%. Its trailing-12-month levered FCF margin of 9.21% is 41.3% higher than the industry average of 6.52%. Similarly, its trailing-12-month asset turnover ratio of 0.84x is 6.9% higher than the industry average of 0.79x.
For the fiscal third quarter that ended December 31, 2023, GHM’s net sales and adjusted EBITDA stood at $43.82 million and $3.85 million, up 9.9% and 72.1% year-over-year, respectively. For the same quarter, its adjusted net income and net income per share increased 182.8% and 175% from the year-ago quarter to $2.42 million and $0.22, respectively.
Street expects GHM’s EPS for the quarter ending September 30, 2024, to increase 100% year-over-year to $0.08. Its revenue for the quarter that ended March 31, 2024, is expected to rise 3.4% year-over-year to $44.50 million.
The company surpassed consensus EPS and revenue estimates in each of the trailing four quarters. GHM has gained 143.6% over the past year, closing the last trading session at $28.87.
GHM’s POWR Ratings reflect its robust prospects. It has an overall B rating, equating to Buy in our proprietary rating system.
GHM has an A grade for Sentiment and a B for Growth. Within the Energy - Services industry, it is ranked #11 out of 51 stocks. Get GHM’s Value, Momentum, Stability, and Quality ratings here.
MV Oil Trust (MVO)
MVO acquires and holds term net profits interests in the oil and natural gas properties of MV Partners, LLC. Its properties’ wells are located in the Mid-Continent region in Kansas and Colorado.
MVO’s trailing-12-month net income margin of 94.48% is 741.4% higher than the industry average of 11.23%. Its trailing-12-month Return on Common Equity and Return on Total Assets of 302.01% and 352.67% are considerably higher than the industry averages of 14% and 5.64%, respectively.
MVO’s income from net profits interest for the fiscal first quarter that ended March 31, 2024, increased 7.2% year-over-year to $5.56 million. The company’s distributable income stood at $5.35 million or $0.47 per share, up 13.4% over the prior-year quarter.
The stock has declined 1.2% intraday to close the last trading session at $9.32.
MVO’s POWR Ratings reflect this positive outlook. It has an overall rating of B, equating to Buy in our proprietary rating system.
MVO has a B grade for Quality. It is ranked #11 out of 81 stocks in the Energy - Oil & Gas industry. Click here to see MVO’s ratings for Growth, Value, Momentum, Stability, and Sentiment.
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IPXHY shares were trading at $15.19 per share on Thursday morning, up $0.07 (+0.46%). Year-to-date, IPXHY has gained 13.73%, versus a 11.82% 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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