Oil prices surged past the $90 per barrel mark on Wednesday, posting its highest level in eight years, as oil supply remains limited, and Russia’s prospective invasion of Ukraine led to strong gains in energy prices. Brent Crude futures and the United States West Texas Intermediate crude futures both gained more than 2% to $90.07 a barrel and $87.43 per barrel, respectively.
Credit rating and risk analysis firm, Moody’s Investor Service, has predicted that demand for fossil fuels would propel beyond pre-pandemic levels this year, despite administrative commitments to reduce greenhouse gas emissions. Energy prices are expected to remain high, owing to strong demand and an uncertain supply. Investors' interest in the energy sector is evident from the Energy Select Sector SPDR Fund’s (XLE) gains of 60% over the past year versus the broader SPDR S&P 500 ETF Trust’s (SPY) returns of 12.9%.
Therefore, the fundamentally strong energy stocks, Archrock, Inc. (AROC), NOW Inc. (DNOW), and SandRidge Energy, Inc. (SD), might be solid buys. These stocks are trading below $15.
Archrock, Inc. (AROC)
AROC is an energy infrastructure company operating in the United States. The company operates through the two broad segments of Contract Operations and Aftermarket Services; and designs, owns, installs, repairs, and services its fleet of natural gas compression equipment. It also provides maintenance, overhaul, and reconfiguration services.
On October 28, AROC declared a quarterly dividend of $0.145 per share of common stock, or $0.58 per share on an annualized basis, which was payable to shareholders on November 16. This reflects upon the company’s ability of cash generation and rewards shareholders.
AROC’s aftermarket services revenue increased 19.2% year-over-year to $36.26 million in the fiscal third quarter ended September 30, while aftermarket services gross margin rose 19.2% from the prior-year quarter to $5.60 million. The company’s free cash flow came in at $120.83 million, up 20.3% from the same period last year.
Analysts expect AROC’s EPS to increase 76.5% year-over-year to $0.30 for the fiscal year 2022. Likewise, Street expects revenue for the same year to improve 6.5% from the prior year to $873.56 million.
AROC’s shares have gained 13.1% over the past month and 3.3% over the past five days to close yesterday’s trading session at $8.52.
AROC’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
AROC has a B grade for Momentum and Quality. In the 41-stock Energy – Services industry, it is ranked #4. To see the additional POWR Ratings for Growth, Value, Stability, and Sentiment, click here.
NOW Inc. (DNOW)
DNOW is a distributor of downstream energy and industrial products used in petroleum refining, chemical processing, LNG terminals, and industrial manufacturing operations. The company markets its products under the brand names DistributionNOW and DNOW.
On December 17, DNOW announced an amendment to its existing Senior Secured Credit Facility with a lenders syndicate. The amended credit facility extends the maturity date to 2026 and is expected to provide cost savings and other improved terms.
For the fiscal third quarter ended September 30, DNOW’s revenue increased 34.7% year-over-year to $439 million. Non-GAAP net income and non-GAAP EPS, excluding other costs, came in at $6 million and $0.05, registering a substantial increase over their negative year-ago values.
The consensus EPS estimate of $0.03 for the fourth quarter (ended December 2021) indicates a 112% year-over-year increase. Likewise, the consensus revenue estimate for the same period of $426.10 million reflects an improvement of 33.6% from the prior-year quarter. Moreover, DNOW has an impressive surprise earnings history, as it has topped consensus EPS estimates in three out of the trailing four quarters.
The stock has gained 10.1% over the past year and 21.4% over the past three months to close yesterday’s trading session at $8.92.
It’s no surprise that DNOW has an overall B rating, which translates to Buy in our POWR Rating system. The stock has a B grade for Growth, Momentum, and Quality. It is ranked #5 in the Energy – Services industry. Click here to see the additional POWR Ratings for DNOW (Value, Stability, and Sentiment).
SandRidge Energy, Inc. (SD)
SD acquires, develops, and produces oil and natural gas. The company operates primarily in the United States Mid-Continent.
As of September 30, SD returned 106 wells to production that were shut down due to the commodity price downturn in 2020. The company reported that it was exploring the potential of Carbon Capture, Utilization, and Sequestration (CCUS) and its technical and commercial feasibility with its existing asset base. This might prove to be beneficial for the company.
SD’s total revenues increased 68.3% year-over-year to $46.58 million in the fiscal third quarter ended September 30. Adjusted EBITDA rose 117.4% from the prior-year period to $33.54 million. Adjusted net income available to common stockholders and adjusted net income per share improved 443.5% and 433.3% from the same period last year to $29.44 million and $0.80, respectively.
Over the past year, SD’s stock has gained 133% to close yesterday’s trading session at $10.44. It has gained 78.2% over the past six months.
This promising outlook is reflected in SD’s POWR Ratings. The stock has an overall B rating, which translates to Buy in our proprietary rating system.
SD has a Momentum and Quality grade of A, and a Growth and Value grade of B. In the 12-stock Energy – Drilling industry, it is ranked #1. In addition to the POWR Rating grades we’ve stated above, one can see SD ratings for Stability and Sentiment here.
AROC shares were trading at $8.30 per share on Thursday afternoon, down $0.22 (-2.58%). Year-to-date, AROC has gained 10.96%, versus a -9.34% 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.
3 Energy Stocks Under $15 to Buy as Oil Prices Remain Near Multi-Year Highs StockNews.com
