The energy sector’s outlook appears strong, thanks to the escalating oil and gas demand and tight crude supplies. Upon careful analysis, quality energy stock TotalEnergies SE (TTE) appears to be a solid candidate to buy now. However, it could also be wise to watch stocks like PBF Energy Inc. (PBF) and Marathon Oil Corporation (MRO) for potential buying opportunities.
The energy sector maintained fundamental strength amid a complex global economic environment of uncertainty and shifting geopolitical landscapes. The global energy watchdog, the International Energy Agency’s (IEA) energy report, revealed that global oil demand surged to a record high of 103 mb/d in June, with the prediction of reaching another pinnacle in August.
Correspondingly, the Organization of Petroleum Exporting Countries (OPEC) forecasts that the global oil demand will escalate by roughly 2.4 mb/d, averaging at 102 mb/d. The United States further consolidates its prestige as the leading oil consumer worldwide, with an estimated consumption of 19.1 mb/d in 2022.
Interestingly, the U.S. oil demand demonstrates remarkable resilience, surpassing previous predictions. Standard Chartered commodity analysts’ data underpin strong gasoline and jet fuel demands, which are closely associated with household behavior. The Energy Information Administration's projected initial annual gasoline demand has registered an impressive annual improvement of 98 kb/d.
Other factors influencing supply and demand dynamics revolve around OPEC+ and Russia’s orchestrated production cuts and extensive crude draws, suggesting a probable surge in oil prices. In addition, uncertainties prevail due to the military coup in Gabon, a member of OPEC and a producer of around 200,000 bpd of oil.
Saudi Arabia’s decision to continue their voluntary one mb/d crude oil production cut until the end of this year has steered Brent crude oil prices over $90 per barrel. Also, the West Texas Intermediate (WTI) crude oil reached its highest price this year at $85 per barrel. The cumulative effect of the factors is anticipated to propel oil prices further.
Smead Capital Management’s president and portfolio manager, Cole Smead, told BBN Bloomberg that crude oil prices could advance to hit $100 and even $120 per barrel, suggesting a decisive shift toward aggressive oil market investments.
Investor enthusiasm for energy stocks is evidenced by SPDR S&P Oil & Gas Exploration & Production ETF’s (XOP) 24% returns in the past three months, outperforming the broader S&P 500's 5.7% increase.
Keeping these positive trends in mind, let's delve into the fundamentals of the three Energy – Oil & Gas stock picks, beginning with number 3.
Stock #3: Marathon Oil Corporation (MRO)
MRO explores, produces, and markets crude oil, condensate, and natural gas liquids (NGLs) in domestic and international markets. The company operates through two geographical segments: United States and International.
During the second quarter, MRO returned $434 million to shareholders, including $372 million in share repurchases and the $62 million base dividend. MRO scheduled the second quarter dividend payment of 10 cents per share of common stock to stockholders on September 11, 2023.
It pays a $0.40 per share dividend annually, translating to a 1.48% yield at the current price. Its four-year average dividend yield is 1.51%. The company’s dividend payouts have grown at 57.4% and 14.3% CAGRs over the past three and five years, respectively.
MRO’s trailing 12-month gross profit and net income margins of 78.06% and 30.56% are 64.2% and 116.2% higher than the industry averages of 47.34% and 14.13%, respectively. Moreover, its trailing-12-month cash from operations of $4.62 billion is 607.6% higher than the industry average of $653.45 million.
During the fiscal second quarter that ended June 30, 2023, MRO’s total revenue and other income amounted to $1.51 billion, while its income from operations came in at $454 million. During the same quarter, the company’s adjusted net income and net income per share stood at $295 million and $0.48, respectively.
As of June 30, 2023, MRO’s total current assets stood at $1.70 billion, compared to $1.67 billion as of December 31, 2022. For the second quarter of 2023, the U.S. production averaged 356,000 net boed, increasing from 341,000 net boed during the first quarter.
Analysts expect MRO’s revenue and EPS for the fiscal third quarter ending September 2023 to come at $1.66 billion and $0.60, respectively. Moreover, the company has impressed by surpassing consensus EPS estimates in each of the trailing four quarters.
The stock has gained 18.4% over the past three months to close the last trading session at $27.16. Over the past month, it gained 3.7%.
MRO’s fundamentals are reflected in its POWR Ratings. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has been rated B for Sentiment and Quality. MRO is ranked #64 of 87 stocks in the Energy – Oil & Gas industry.
Click here for MRO’s additional ratings for Growth, Value, Momentum, and Stability.
Stock #2: PBF Energy Inc. (PBF)
PBF is an independent petroleum refiner that supplies unbranded transportation fuels, heating oil, petrochemical feedstocks, lubricants, and other petroleum products in the United States. The company operates in two segments: Refining and Logistics.
On August 14, PBF announced the pricing of its $500 million in aggregate principal amount of 7.875% senior notes due 2030 at an issue price of 99.324% in a private offering. The company intends to use the net proceeds from the offering and cash on hand to fund the redemption of its 7.25% Senior Notes due 2025.
On August 31, PBF paid the shareholders a quarterly dividend of $0.20 per share of Class A common stock. The company pays $0.80 per share annually, which translates to a yield of 1.73% at the current price. The company’s dividend payouts have grown at a 10.1% CAGR over the past three years.
On June 28, Eni Sustainable Mobility Spa and PBF closed the 50-50 joint venture partnership in St. Bernard Renewables LLC (SBR), an operating bio refinery co-located with PBF’s Chalmette Refinery in Louisiana. The strategic partnership should leverage the experience and expertise of Eni Sustainable Mobility and PBF.
PBF’s trailing 12-month asset turnover ratio 3x is 391.9% higher than the industry average of 0.61x. Moreover, the trailing-12-month ROCE, ROTC, and ROTA of 67.37%, 24.71%, and 22.07% are 212.4%, 133.2%, and 173.6% higher than the industry averages of 21.57%, 10.60%, and 8.06%, respectively.
For the fiscal second quarter that ended June 30, 2023, PBF’s revenues stood at $9.16 billion, while its income from operations came in at $1.39 billion. The company’s adjusted fully converted net income and net income per share stood at $1.03 billion and $7.88, respectively.
As of June 30, 2023, PBF’s total debt stood at $1.44 billion, compared to $1.96 billion as of December 31, 2022.
Analysts expect PBF’s revenue and EPS for the fiscal third quarter ending September 2023 to come at $9.62 billion and $3.82, respectively. The company surpassed consensus revenue estimates in each of the trailing four quarters and EPS estimates in three of the trailing four quarters.
PBF has gained 47.1% over the past year and 35.5% over the past three months to close the last trading session at $49.21.
PBF’s fundamentals are reflected in its POWR Ratings. It has an A grade for Value and a B for Momentum and Quality. PBF is ranked #14 within the Energy – Oil & Gas industry.
To access PBF’s additional POWR Ratings for Growth, Stability, and Sentiment, click here.
Stock #1: TotalEnergies SE (TTE)
Headquartered in Courbevoie, France, TTE is a multi-energy company that produces and markets fuels, natural gas, and electricity in France, the rest of Europe, North America, Africa, and internationally. It operates through Integrated Gas, Renewables & Power; Exploration & Production; Refining & Chemicals; and Marketing & Services segments.
On September 1, TTE officially inaugurated the Absheron gas field, whose first development phase started production in early July 2023 and has since been boasting an impressive production rate of 1.5 billion cubic meters per annum (BCMA).
In a recent discussion about TTE's ongoing projects within Azerbaijan, the company revealed plans for launching the second development phase of the Absheron gas field, which will scale up the field's production to 5.5 BCMA, showcasing the country's commitment to meet the rising European market demand.
The company also plans to participate in developing the country’s renewable energy potential under the MoU signed in June 2023 to assess and develop 500 MW of renewable wind and solar energies and energy storage systems for the national grid.
On August 22, TTE signed an agreement with CapeOmega Carbon Storage AS, a wholly owned subsidiary of CapeOmega AS, to acquire the 40% participating interest held by CapeOmega in the CO2 storage exploration license ExL004. The transaction is an important milestone to grow TTE’s CO2 storage offering: subject to successful exploration, this area could enable the storage of several hundred million tons of CO2 from hard-to-abate industries in Europe.
TTE’s Board of Directors confirmed for 2023 a shareholder distribution of more than 40% of cash flow. The Board decided the distribution of a second interim dividend for the 2023 financial year in the amount of €0.74 per share, up 7.25% year-on-year, and authorized the company to buy back shares for $2 billion in the third quarter of 2023.
TTE pays $3.10 annually as dividends, which translates to a yield of 4.85% at the current price level. Its four-year average dividend yield is 6.63%. The company’s dividend payouts have grown at a 6.2% CAGR over the past five years.
TTE’s trailing 12-month levered FCF margin of 10.28% is 65% higher than the industry average of 6.23%. Moreover, the trailing 12-month cash from operations of $38.50 billion is significantly higher than the industry average of $653.43 million.
TTE’s revenues from sales stood at $51.53 billion in the fiscal second quarter that ended June 30, 2023. Its adjusted net income and net income per share were $4.96 billion and $1.99, respectively, while adjusted EBITDA stood at $11.11 billion. As of June 30, 2023, TTE’s total current liabilities stood at $89.74 billion, compared to $109.78 billion as of December 31, 2022.
Analysts expect TTE’s revenue and EPS to be $48.92 billion and $2.39 for the fiscal third quarter ending September 2023. For the fiscal year ending December 2023, its revenue and EPS are expected to come at $218.76 billion and $9.42, respectively.
The stock has gained 25.5% over the past year to close the last trading session at $63.80. Over the past three months, it gained 9.4%.
TTE’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
TTE has an A grade for Momentum and a B in Stability, Sentiment, and Quality. It is ranked #11 within the same industry.
Beyond what we have highlighted above, one can access TTE’s additional POWR Ratings for Growth and Value here.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
TTE shares rose $0.16 (+0.25%) in premarket trading Wednesday. Year-to-date, TTE has gained 4.84%, versus a 18.36% 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.
3 Energy Stocks to Keep on Your Radar This Month StockNews.com
