Saudi Arabia's extended oil production cuts are expected to drive oil prices higher. Simultaneously, the increasing global demand for natural gas, fueled by robust economic activity and rising refined petroleum consumption, is poised to propel growth within the gas industry.
To that end, it could be wise to add fundamentally sound energy stocks Solaris Oilfield Infrastructure, Inc. (SOI), Profire Energy, Inc. (PFIE), and NOW Inc. (DNOW) to your portfolio, all of which are currently trading below $15. Before diving into these stocks, let's first examine the broader developments in the energy sector.
Following the peak in oil prices in June 2022, the number of active drilling rigs peaked in December 2022, subsequently declining by 16% by August 2023, as reported by Baker Hughes. As a result, Lower 48 output is expected to peak in the third quarter of 2023 as companies work through the inventory of drilled but uncompleted wells.
This anticipated plateau or decrease in Lower 48 production will contribute to a tightening global oil market in the final four months of 2023. This is especially significant as Saudi Arabia and Russia are maintaining their production cuts, further impacting the global supply-demand balance.
That said, Saudi Arabia's new 9 million bpd crude oil production target will likely cause more oil price fluctuations. Yesterday, Brent crude reached $93 a barrel for the first time in 2023. Tamas Varga of PVM said, "The tightening oil balance will remain the dominant price driver for the rest of 2023."
Moreover, Cole Smead, President and Portfolio Manager at Smead Capital Management, posits the possibility of crude oil prices surging to $100 or even $120 per barrel. This underscores a strong rationale for adopting proactive investment strategies in the oil market at this juncture.
In light of these encouraging trends, let's look at the fundamentals of the three leading Energy - Services stocks, beginning with number 3.
Stock #3: Solaris Oilfield Infrastructure, Inc. (SOI)
SOI engineers and fabricates mobile proppant management systems, serving the functions of unloading, storing, and dispensing proppant, water, and chemicals at oil and natural gas well locations. Additionally, the enterprise pioneers Railtronix, an inventory management software solution.
On March 2, SOI's Board of Directors approved an upgraded shareholder return initiative, entailing a rise in the company's quarterly cash dividend to $0.11 per share and the authorization of a $50 million share repurchase program.
SOI boasts a robust history of delivering cash to its shareholders, having disbursed around $112 million since 2018 through dividends and share buybacks. Remarkably, the company has stood out in the industry by consistently upholding its dividend throughout all market cycles.
SOI's Chairman and Chief Executive Officer Bill Zartler commented, “We plan to return at least 50% of free cash flow to shareholders through dividends and share repurchases, demonstrating our confidence in Solaris’ offerings, customers, employees, and value proposition.”
Over the past three years, the company’s revenue increased at a CAGR of 23.3%. Its EBITDA and total assets grew at a CAGR of 6.6% and 4.9%, respectively. In addition, the company’s net income and EPS rose at respective CAGRs of 147.9% and 172% during the same time frame.
For the second quarter that ended June 30, 2023, SOI’s operating income rose 52.9% year-over-year to $15.78 million. Its adjusted EBITDA grew 27.3% from the year-ago value to $26.83 million.
In addition, the company’s net income increased 47.7% from the prior year’s quarter to $12.24 million, while the EPS of class A common stock came in at $0.24, up 50% year-over-year.
The consensus revenue estimate of $321.40 million for the fiscal year ending December 2023 reflects a marginal year-over-year growth. Likewise, analysts expect the company’s EPS to come in at $1.02, up 34.2% year-over-year. Also, the company surpassed the consensus EPS estimates in all four trailing quarters.
SOI’s shares have gained 19.3% over the past six months to close the last trading session at $10.95.
SOI’s positive fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
SOI has an A grade for Momentum and a B for Sentiment. It has ranked #11 in the 47-stock Energy - Services industry.
In addition to the POWR Ratings I’ve just highlighted, you can see SOI’s ratings for Growth, Value, Quality, and Stability here.
Stock #2: Profire Energy, Inc. (PFIE)
PFIE delivers advanced burner and combustion management systems, catering to both natural and forced draft applications. Its primary emphasis lies in serving the upstream, midstream, and downstream transmission segments within the oil and gas industry.
The company’s revenue grew at a CAGR of 23.2% over the past three years. In addition, its total assets rose at a CAGR of 8.7% during the same time frame.
For the second quarter that ended June 30, 2023, PFIE’s revenues increased 49.9% year-over-year to $14.44 million. Its gross profit grew 68.4% from the year-ago value to $7.41 million. Also, the company’s net income and EPS rose 903.1% and 500% from the prior year’s quarter to $2.86 million and $0.06, respectively.
For the fiscal year ending December 2023, analysts expect PFIE’s revenue to increase 26.4% year-over-year to $58.07 million. Also, the company’s EPS for the ongoing year is expected to increase 150% from the previous period to $0.20. Moreover, the company topped the consensus revenue and EPS estimates in all four trailing quarters, which is impressive.
Year-to-date, the stock has gained 190.6%, closing the last trading session at $3.08.
PFIE’s solid prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
PFIE has an A grade for Sentiment and a B for Momentum and Quality. It is ranked #5 out of 47 stocks in the Energy – Services industry.
Click here to access the additional PFIE ratings (Stability, Growth, and Value).
Stock #1: NOW Inc. (DNOW)
DNOW actively distributes a comprehensive range of downstream energy and industrial products, serving diverse sectors such as petroleum refining, chemical processing, LNG terminals, power generation utilities, and industrial manufacturing operations. The company provides these products under the brand names DistributionNOW and DNOW.
Over the past three years, the company’s EBITDA increased at a CAGR of 472.9%. Moreover, its total assets increased at a CAGR of 9.9%.
For the second quarter that ended June 30, 2023, DNOW’s revenue increased 10.2% year-over-year to $594 million. Its operating profit rose 24.1% from the year-ago value to $36 million. Furthermore, net income and EPS attributable to DNOW grew 30.8% and 34.8% from the previous year’s period to $34 million and $0.31, respectively.
The company’s revenue for the fiscal year ending December 2023 is expected to increase 10.1% year-over-year to $2.35 billion. Likewise, analysts expect DNOW’s EPS to grow 2.6% from the prior year to $0.98. Furthermore, the company surpassed the consensus revenue estimates in each of the four trailing quarters.
Over the past month, the stock has gained 9.1%, closing the last trading session at $11.71.
DNOW’s robust outlook is apparent in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
DNOW has an A grade for Momentum and Value and a B for Sentiment and Quality. It is ranked #4 out of 47 stocks within the same industry.
Click here to access additional DNOW ratings for Growth and Stability.
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DNOW shares were trading at $11.49 per share on Friday afternoon, down $0.22 (-1.88%). Year-to-date, DNOW has declined -9.53%, versus a 16.82% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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