The energy services sector shows robust growth prospects, accelerated by global oil and gas demand and a surge in production and exploration. Given this backdrop, quality energy services stocks Graham Corporation (GHM), Newpark Resources, Inc. (NR), and Liberty Energy Inc. (LBRT) could be profitable portfolio additions this month.
Global liquids demand increased by 0.2 million barrels per day (bpd) month-over-month in August to 101.40 million bpd. Outside of China, the majority of the increase was driven by the United States, where demand rose by 0.5 million bpd month-over-month.
Due to the Israel-Hamas conflict, the oil market could receive a jolt. For the current quarter, oil prices are expected to average $90 per barrel. Globally, oil prices are anticipated to average $90 per barrel for the current quarter. Moreover, OPEC+, which pumps around 40% of the world's crude, is set to limit supplies until the end of 2024.
In its 2023 World Oil Outlook, OPEC projected global demand to reach 116 million bpd by 2045, up from 99.6 million bpd in 2022 and roughly 6 million bpd more than what it predicted last year.
Given this robust demand for oil, the global oilfield services market is projected to reach $550.09 billion, growing at a CAGR of 6.5% by 2032.
Given the industry tailwinds, it's time to examine the fundamentals of the top three stocks to buy in the Energy - Services industry, starting with the third in line.
Stock #3: 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.
On November 10, GHM acquired P3 Technologies, LLC, a custom turbomachinery engineering, product development and manufacturing business to expand its custom turbomachinery capabilities and technology solutions. P3’s Multi-Channel Diffuser (MCD) and Self-Contained Actuating Magnetic Pump (SCAMP) provide a product family platform that can be leveraged across many applications and industries.
On November 1, GHM received a record level of monthly orders of approximately $110 million in October 2023, including follow-on orders for critical U.S. Navy programs. These defense orders are expected to be reflected in revenue beginning in the fourth quarter of fiscal 2025 through early fiscal 2030.
GHM’s trailing-12-month CAPEX/Sales of 3.35% is 10.4% higher than the industry average of 3.04%, while its trailing-12-month levered FCF margin of 11.18% is 77.3% higher than the industry average of 6.31%.
GHM’s net sales and gross profit increased 18.2% and 36.2% year-over-year to $45.08 million and $7.19 million, respectively, in the fiscal second quarter of fiscal 2024 (ended September 30, 2023).
For the same quarter, its adjusted net income and adjusted net income per share stood at $1.37 million and $0.13, up 321.8% and 333.3% from the prior-year period, respectively. Moreover, its adjusted EBITDA increased 76.3% from the year-ago value to $2.71 million.
Street expects GHM’s revenue and EPS for the fiscal year ending March 2024 to increase 11.9% and 800% year-over-year to $175.85 million and $0.27, respectively. The company surpassed consensus revenue estimates in each of the trailing four quarters, while it surpassed consensus EPS estimates in three of the trailing four quarters, which is impressive.
The stock has gained 79% year-to-date to close the last trading session at $17.22. Over the past year, it has gained 72.7%.
GHM’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 an A grade for Sentiment and a B for Value and Momentum. Within the 49-stock Energy - Services industry, it is ranked #14.
To see additional POWR Ratings for Growth, Stability, and Quality for GHM, click here.
Stock #2: Newpark Resources, Inc. (NR)
NR provides products, rentals, and services primarily to the oil and natural gas exploration and production (E&P) industry. Its segments are Industrial Solutions and Fluids Systems.
The company is engaged in a multi-year business transformation plan, aiming to drive organic growth targeting higher-margin product and rental markets, improve asset optimization, and pursue an efficient capital allocation strategy. Under this plan, NR used $6 million to repurchase 1 million shares of common equity during the third quarter.
NR’s trailing-12-month asset turnover ratio of 1.13x is 105.3% higher than the industry average of 0.55x, while its trailing-12-month levered FCF margin of 13.86% is 138.5% higher than the industry average of 5.81%.
NR’s revenues stood at $198.50 million in the fiscal third quarter that ended September 30, 2023. Its operating income came at $13.25 million, compared to an operating loss of $21.31 million in the prior-year quarter.
For the same quarter, its adjusted net income and adjusted net income per common share increased 59.5% and 50% year-over-year to $8.35 million and $0.09, respectively. Moreover, its adjusted EBITDA stood at $22.26 million, up 13.5% from the year-ago value.
Street expects NR’s EPS for the fiscal fourth quarter ending December 2023 to increase 14.3% year-over-year to $0.08. Its revenue for the same period is expected to be $171.40 million.
The stock has gained 82.4% over the past six months to close the last trading session at $6.95. Over the past year, it has gained 72.5%.
NR’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
NR has an A grade for Sentiment and a B for Momentum. Within the same industry, it is ranked #12.
Beyond what we’ve stated above, we have also rated the stock for Growth, Value, Stability, and Quality. Get all ratings of NR here.
Stock #1: Liberty Energy Inc. (LBRT)
LBRT provides hydraulic services and related technologies to onshore oil and natural gas exploration and production companies in North America. It offers hydraulic fracturing services, together with complementary services, including wireline services, proppant delivery solutions, data analytics, related goods, and technologies.
On October 17, LBRT’s board of directors declared a quarterly cash dividend of $0.07 per share of class A common stock, indicating 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 1.48% on the current share price. Its four-year average yield is 0.97%. LBRT’s dividend payments have grown at CAGRs of 26% and 32% over the past three and five years, respectively.
LBRT’s trailing-12-month asset turnover ratio of 1.75x is 217.2% 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 99.9%, 177%, and 181.5% higher than the industry averages of 19.32%, 9.30%, and 7.09%, respectively.
LBRT’s revenue and operating income increased 2.3% and 12.2% year-over-year to $1.22 billion and $205.23 million, respectively, in the fiscal third quarter that ended September 30, 2023. Moreover, its adjusted EBITDA increased 15.3% from the prior-year quarter to $319.21 million.
For the same quarter, net income attributable to LBRT stockholders and net income attributable to LBRT stockholders per common share stood at $148.61 million and $0.85, up 1.1% and 9% from the year-ago values, 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.
The stock has gained 18.1% year-to-date to close the last trading session at $18.91. Over the past six months, it has gained 56.5%.
LBRT’s robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system.
LBRT has a B grade for Value and Momentum. It is ranked #9 within the same industry.
Click here for the additional POWR Ratings for LBRT (Growth, Stability, Sentiment, and Quality).
What To Do Next?
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LBRT shares were trading at $19.26 per share on Monday afternoon, up $0.35 (+1.85%). Year-to-date, LBRT has gained 21.49%, versus a 16.42% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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