Despite geopolitical turmoil and a plethora of macroeconomic challenges, the energy sector performed comparatively better than the other sectors of the economy and is well-positioned for upward momentum in the foreseeable future.
Considering the uptick in energy demand and simultaneous supply constraints that could push up energy prices, let us explore some energy stocks, Weatherford International plc (WFRD), Euronav NV (EURN), and North European Oil Royalty Trust (NRT), which seem poised for growth, for reasons mentioned throughout the article.
Unlike some other sectors, the energy sector benefitted significantly on the backs of soaring oil and gas prices due to the Russia-Ukraine conflict. The sector is anticipated to maintain its momentum in the foreseeable future amid increased demand from Asian countries.
In its last Oil Market Report, the International Energy Agency (IEA) projected global oil demand to average 102 mb/d in 2023, 1.3 mb/d more than in 2019. In addition, in the United States, with driving season looming, fuel demand is set to remain robust.
Moreover, amid increased energy demand, a supply crunch induced by production cuts could prop up the prices. In the recent OPEC+ meeting, there was an agreement on the extension of existing production cuts of 3.66 million bpd until the end of this year and a reduction of the combined production by another 1.4 million bpd from the start of 2024.
Saudi Arabia had announced voluntary oil production cuts by another one million barrels daily in July, which could drive up prices. Analysts anticipate that Brent prices could hit $100 by the end of this year amid this production cut decision.
Investors could capitalize on the industrial tailwinds and buy energy stocks WFRD, EURN, and NRT, with strong fundamentals, now.
Weatherford International plc (WFRD)
WFRD is an energy services company that provides equipment and services for the drilling, evaluation, completion, production, and intervention of oil, geothermal, and natural gas wells worldwide. The company operates in approximately 75 countries.
On April 20, the company issued a notice to redeem the remaining $105 million of its 11% Senior Unsecured Notes due 2024 at a redemption price of 102.750% of the principal amount, plus accrued and unpaid interest to, excluding the redemption date.
The redemption has been considered a crucial step towards its capital structure improvement. In addition, WFRD’s President and CEO, Girish Saligram, anticipates WFRD’s overall revenue to grow by mid-teens year-over-year in 2023, and adjusted EBITDA margins are projected to expand by at least 250 basis points year-over-year.
WFRD’s trailing-12-month levered FCF margin of 8.93% is 51.2% higher than the industry average of 5.91%. Likewise, its trailing 12-month ROCE and ROTC of 36.97% and 12.13% are 54.3% and 7% higher than the industry averages of 23.95% and 11.34%, respectively.
WFRD’s EBITDA has grown at 34.7% CAGR over the past three years.
For the fiscal first quarter that ended March 31, 2023, WFRD’s total revenues stood at $1.19 billion, up 26.4% year-over-year, while its adjusted EBITDA increased 78.1% year-over-year to $269 million.
Net income attributable to WFRD stood at $72 million compared to a net loss of $80 million for the prior-year quarter. Its income per share came in at $0.97 compared to a loss per share of $1.14 for the year-ago quarter.
The consensus EPS estimate of $1.14 for the fiscal second quarter ending June 2023 indicates a substantial year-over-year increase. Its consensus revenue estimate of $1.24 billion for the same quarter indicates a growth of 16.1% year-over-year.
Moreover, WFRD topped consensus EPS and revenue estimates in each of the trailing four quarters, which is impressive.
Over the past year, shares of WFRD have gained 86.6% to close the last trading session at $62.68. The stock has gained 45.8% over the past six months.
WFRD’s POWR Ratings reflect a promising outlook. The company has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.
WFRD has an A grade for Growth and a B for Momentum, Sentiment, and Quality. WFRD ranks #2 in the 93-stock Energy – Oil & Gas industry.
In addition to the above-mentioned POWR Ratings, one can see the additional ratings for Value and Stability for WFRD here.
Euronav NV (EURN)
Headquartered in Antwerp, Belgium, EURN engages in the ocean transportation and storage of crude oil worldwide. The company owns and operates a fleet of vessels, including chartered-in vessels.
On May 17, EURN’s Supervisory Board outlined a proposal to distribute a full-year gross return in the amount of $1.10 per share to all shareholders on June 13, 2023.
This payout would be a combination of a dividend and mainly a repayment from the share issue premium. Its annualized dividend rate per share yields 0.32% on prevailing prices. EURN’s four-year average dividend yield is 3.86%.
EURN’s CEO Hugo De Stoop said, “Our confidence is reflected in our returns to shareholders. The combination of our final 2022 dividend and the dividend related to Q1 means that $1.80 per share will be returned in Q2 2023.”
EURN’s trailing-12-month net income margin of 39.03% is 155.5% higher than the industry average of 15.28%. Its trailing-12-month CAPEX/Sales of 54.87% is 339.3% higher than the industry average of 12.49%.
EURN’s revenue has grown 9.3% CAGR over the past five years. Moreover, its EBIT and net income have grown at 3.1% and 9.8% CAGRs over the past three years, respectively.
For its fiscal first quarter that ended March 31, 2023, EURN’s revenue increased 197.2% year-over-year to $339.96 million. Its profit for the period and profit per share came in at $175.05 million and $0.87, compared to the loss for the period and loss per share of $43.37 million and $0.22, respectively, in the previous year’s quarter.
Its proportionate EBITDA increased 502.5% from the same quarter in the prior year to $258.53 million.
For the fiscal third quarter ending September 2023, EURN’s consensus revenue and EPS estimate of $325.34 million and $0.24 indicate 45.5% and 196.9% year-over-year growths, respectively. Moreover, EURN topped consensus EPS in three of the trailing four quarters.
The stock gained 5.33% intraday to close its last trading session at $15.96. Moreover, it has gained 18.3% over the past year.
It’s no surprise that EURN has an overall rating of B, which equates to Buy in our proprietary rating system.
EURN has an A grade for Sentiment and a B for Growth, Momentum, and Quality. Within the same industry, it is ranked #14.
To see the additional POWR Ratings for EURN (Value and Stability), click here.
North European Oil Royalty Trust (NRT)
NRT is a grantor trust that holds overriding royalty rights covering gas and oil production in various concessions or leases in the Federal Republic of Germany. The company has rights under contracts with German exploration and development subsidiaries of ExxonMobil Corp. and the Royal Dutch/Shell Group of Companies.
On April 28, NRT announced a quarterly dividend distribution of $1.05 per unit for the second quarter of the fiscal year 2023. Its annualized dividend rate of $4.20 per share yields 34.06% on prevailing prices.
NRT’s four-year average dividend yield is 10.91%. The company’s dividend payouts have grown at CAGRs of 78.7% and 33% over the past three and five years, respectively.
NRT’s trailing-12-month levered FCF margin of 80.56% is significantly higher than the 5.91% industry average. Its trailing-12-month ROCE, ROTC, and ROTA of 7,222.4%, 4,514.01%, and 295.02% are significantly higher than the industry averages of 23.95%, 11.34%, and 8.95%, respectively.
NRT’s revenues have grown at 71.9% and 31.4% CAGRs over the past three and five years, respectively. Moreover, its EBIT and net income have grown at 78.3% CAGR over the past three years, respectively.
During the fiscal second quarter that ended April 30, 2023, NRT’s total royalty income stood at $9.76 million, up 158.6% year-over-year, while its net income and net income per unit grew 167% and 164.1% from the prior-year quarter to $9.50 million and $1.03, respectively.
NRT’s current assets (cash and cash equivalents) stood at $10.24 million as of April 30, 2023, compared to $7.19 million as of October 31, 2022.
Over the past three months, the stock has gained 4.1% to close the last trading session at $12.33.
NRT’s POWR Ratings reflect its positive outlook. It has an overall B rating, which equates to Buy in our proprietary rating system.
In addition, NRT has an A grade for Momentum and Quality and a B for Growth. It is ranked #4 within the same industry.
Click here to get additional NRT ratings (Value, Sentiment, and Stability).
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WFRD shares were trading at $63.02 per share on Monday morning, up $0.34 (+0.54%). Year-to-date, WFRD has gained 23.76%, versus a 12.61% 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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