The oil and gas market is amongst the largest sectors in the world contributing across various industries. The recent surge in infrastructure requirements, technological advancements, and the geopolitical concerns have resulted in boosting trade and providing robust prospects for the market to flourish.
Thus, it could be wise to invest in high-momentum, fundamentally sound energy stocks Energy Transfer LP (ET), Secure Energy Services Inc. (SECYF), and Precision Drilling Corporation (PDS) in August for steady returns.
Oil prices have been highly unpredictable recently with concerns over large declines in U.S. crude and fuel stocks, growing oil supply risks from Canadian wildfires, falling U.S. crude and fuel inventories coupled with the rising tensions of a wider Middle East crisis post the killing of a Hamas leader in Iran.
In the last session, Brent crude futures increased by 62 cents to $80.13 a barrel, while U.S. West Texas Intermediate crude futures increased 62 cents to $76.93.
During June, global oil supply increased 150 kb/d to 102.9 mb/d with field maintenance ease and rising biofuels. The solid monthly gains have resulted in 910 kb/d higher output from the prior quarter. Further, global refinery throughputs are projected to increase by 950 kb/d to 83.4 mb/d in 2024, and by 630 kb/d to 84 mb/d in 2025.
Also, factors like lowering crude stocks, and concerning middle-east geopolitical tensions have largely contributed to the crude oil price strength, and resulted in crude oil prices recovery in June from six-month lows, with Brent futures rising by $5/bbl to $86/bbl.
With this, global oil and gas market is projected to reach around $8.92 trillion by 2031, exhibiting growth at a CAGR of 3.7%. Factors like exploration of remote geographical areas, technological innovations, and strategic efforts and growth initiatives by industry players have propelled the market demand.
Given the industry’s robust outlook, investing in quality energy stocks such as ET, SECYF, and PDS could be wise for future gains.
Energy Transfer LP (ET)
ET is an energy-related services provider. The company owns and operates natural gas transportation pipelines and natural gas storage facilities in Texas and Oklahoma and approximately 20,090 miles of interstate natural gas pipeline.
On July 25, ET announced an increase in the quarterly cash distribution to $0.32 per common unit for the second quarter which ended June 30, 2024. The cash distribution per common unit is to be paid on August 19, 2024 to unitholders of record as of the close of business on August 9, 2024, and reflects a rise of 3.2% year-over-year.
ET pays an annual distribution of $1.28, which translates to a yield of 7.87% at the current share price. Its four-year average dividend yield is 9.17%. Moreover, the company’s dividend payouts have increased at a CAGR of 18.1% over the past three years.
On July 16, ET and Sunoco LP (SUN) entered into a joint venture combining their crude oil and produced water gathering assets in the Permian Basin. ET will be holding 67.5% interest in the joint venture with Sunoco holding a 32.5% interest.
Also, on the same day, ET completed acquisition of WTG Midstream Holdings LLC. Total consideration for the transaction was $2,275 million in cash and about 50.8 million newly issued ET common units. The acquisition expanded Permian Basin pipeline and processing network providing further access to growing supplies of natural gas and NGLs.
For the first quarter that ended March 31, 2024, ET’s revenues increased 13.9% year-over-year to $21.63 billion. Its operating income grew 15.4% year-over-year to $2.38 billion. Its net income stood at $1.69 billion, indicating growth of 16.9% from the prior year’s quarter. In addition, the company’s adjusted EBITDA increased 13% year-over-year to $3.88 billion.
Street expects ET’s revenue for the second quarter (ended June 2024) to increase 17.4% year-over-year to $21.50 billion, while the company’s EPS for the same period is expected to grow 42.4% year-over-year to $0.36. For the fiscal year 2024, the company’s revenue and EPS are expected to increase 12% and 34.7% year-over-year to $88.01 billion and $1.47, respectively.
ET’s stock has surged 12.7% over the past six months and 21.9% over the past year to close the last trading session at $16.19.
ET’s POWR Ratings reflect this solid outlook. The stock has an overall rating of B, translating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
ET has an A grade for Momentum and a B grade for Growth, Value, and Stability. It is ranked #3 out of 80 stocks in the Energy – Oil & Gas industry.
In addition to the POWR Ratings we’ve stated above, we also have other ratings of ET for Quality and Sentiment. Get all ET ratings here.
Secure Energy Services Inc. (SECYF)
Headquartered in Calgary, Canada, SECYF is engaged in the waste management and energy infrastructure businesses in Canada and the United States. The company operates in three segments, Environmental Waste Management; Energy Infrastructure; and Oilfield Services.
On June 17, SECYF Board of Directors has declared a quarterly dividend of $0.10 per common share paid on July 15, 2024, to shareholders of record on July 1, 2024. The annualized base dividend of $0.40 per share equates to a total of around $96 million per year based on current issued and outstanding shares.
SECYF’s four-year average dividend yield is 2.74%. Moreover, the company’s dividend payouts have increased at a CAGR of 132.8% over the past three years.
During the second quarter that ended June 30, 2024, SECYF’s total revenue rose 43.2% year-over-year to $2.55 billion, of which its Oil purchase and resale revenue increased 55% year-over-year to $2.21 billion. The company’s net income came in at $32 million and $0.12 per share for the quarter, respectively.
In addition, the company’s discretionary free cash flow grew 26.2% from the year-ago value to $53 million.
Over the past six months, SECYF’s stock has gained 12.5% and 66.7% over the past year to close the last trading session at $8.72.
SECYF’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
The stock has an A grade for Momentum and Value. It also has a B grade for Growth. Within the Energy – Oil & Gas industry, SECYF has topped among the 80 stocks.
Click here to access additional ratings of SECYF for Sentiment, Stability, and Quality.
Precision Drilling Corporation (PDS)
Based in Calgary, Canada, PDS is a drilling company which offers onshore drilling, completion, and production services to exploration and production companies in the oil and natural gas and geothermal industries in North America and the Middle East. It operates in Contract Drilling Services; and Completion and Production Services segments.
In terms of forward non-GAAP P/E, PDS is trading at 10.51x, 10% lower than the industry average of 11.67x. Likewise, the stock’s forward EV/Sales multiple of 1.17 is 44.1% lower than the industry average of 2.10. Also, its forward Price/Sales of 0.74x is 48.9% lower than the industry average of 1.44x.
For the second quarter that ended June 30, 2024, PDS’ revenues increased marginally year-over-year to $429.21 million, and its adjusted EBITDA was $115.12 million. The company’s net earnings came in at $20.70 million and $1.44 per share for the quarter, respectively.
In addition, the company’s cash and total assets stood at $48.23 million and $2.91 billion as of June 30, 2024.
Analysts expect PDS’ revenue for the third quarter (ending September 2024) to increase 15.1% year-over-year to $371.90 million and its EPS is expected to grow 75.9% year-over-year to $1.84 over the same quarter. Moreover, the company has surpassed the consensus revenue estimates in three of the trailing four quarters.
PDS’ stock has surged 23.3% over the past six months and 16.6% over the past year to close the last trading session at $74.88.
PDS’ POWR Ratings reflect its bright prospects. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
PDS has a B grade for Value and Momentum. The stock has topped among the 13 stocks in the Energy - Drilling industry.
To access PDS’ other ratings for Sentiment, Quality, Growth, and Stability, click here.
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ET shares were trading at $15.84 per share on Friday afternoon, down $0.35 (-2.16%). Year-to-date, ET has gained 19.70%, versus a 12.36% rise in the benchmark S&P 500 index during the same period.
About the Author: Rjkumari Saxena
Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.
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