The energy sector’s prospects appear promising amid ongoing geopolitical tensions, expectations of interest rate cuts, and bullish market sentiment. Factors like output cuts, stable demand outlook, and fears of geopolitical tensions spreading in the Middle East are contributing to this positive market sentiment.
Amid this backdrop, investors could consider buying energy stocks DNOW Inc. (DNOW), Geospace Technologies Corporation (GEOS), and Gulf Island Fabrication, Inc. (GIFI) in April.
Oil prices have been rising lately due to the potential widening of tensions in the Middle East, OPEC+’s decision to stick with oil supply cuts through the first half of the year, Mexico's oil export cuts, and Ukrainian drone attacks on Russia’s oil facilities, which have disrupted Russian fuel output. The likelihood of crude oil prices rising appears bright due to stable demand trends amid supply limitations.
Moreover, a robust U.S. job market, a fast-rebounding Chinese economy, and expectations of three interest rate cuts by the Federal Reserve this year signal stable demand for crude. Vitol expects robust global oil demand growth this year at around 1.9 million barrels per day higher than last year. JP Morgan analysts expect oil prices to hit $100 by September.
The potential rise in oil demand could be advantageous for companies involved in drilling, evaluation, production, and maintenance services. The global oilfield services market is anticipated to thrive and is projected to expand at a CAGR of 6.5%, reaching $175.03 billion by 2031.
Considering these conducive trends, let’s analyze the fundamental aspects of the featured energy stocks.
DNOW Inc. (DNOW)
DNOW distributes downstream energy and industrial products for petroleum refining, chemical processing, LNG terminals, power generation utilities, and industrial manufacturing operations internationally. It offers its products under the DistributionNOW and DNOW brand names.
On March 12, 2024, DNOW announced the completion of its acquisition of Whitco Supply, LLC. This move will bolster DNOW's capabilities in core markets and reinforce its commitment to shareholder value through strategic capital deployment.
DNOW's President and CEO, David Cherechinsky, predicts that the acquisition of Whitco Supply will increase market share and expansion in the midstream sector, fostering synergy between their respective businesses.
In terms of the trailing-12-month net income margin, DNOW’s 10.64% is 79.6% higher than the 5.93% industry average. Likewise, its 25.55% trailing-12-month Return on Common Equity is 114.5% higher than the 11.91% industry average. Also, its 1.63x trailing-12-month asset turnover ratio is 105.7% higher than the 0.79x industry average.
For the fiscal fourth quarter that ended on December 31, 2023, DNOW’s revenue increased 1.5% year-over-year to $555 million. Its operating profit stood at $32 million. The company’s non-GAAP net income attributable to DNOW, excluding other costs, and non-GAAP EPS attributable to DNOW stockholders, excluding other costs, came in at $24 million and $0.22, respectively.
Additionally, as of December 31, 2023, DNOW’s total assets amounted to $1.53 billion, compared to $1.32 billion as of December 31, 2022.
Street expects DNOW’s EPS for the quarter ending June 30, 2024, to increase 2% year-over-year to $0.26. Its revenue for the quarter ending September 30, 2024, is expected to increase 5.3% year-over-year to $619.23 million. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past three months, the stock has gained 47.9% to close the last trading session at $15.43.
DNOW’s POWR Ratings reflect its solid prospects. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #7 out of 49 stocks in the Energy - Services industry. It has an A grade for Value and Momentum and a B for Quality. Click here to see the other ratings of DNOW for Growth, Stability, and Sentiment.
Geospace Technologies Corporation (GEOS)
GEOS designs and manufactures instruments and equipment used in the oil and gas industry to acquire seismic data to locate, characterize, and monitor hydrocarbon-producing reservoirs. The company operates through three segments: Oil and Gas Markets, Adjacent Markets, and Emerging Markets.
On January 3, 2024, GEOS announced a $30 million contract for its Mariner shallow-water ocean bottom nodes, replacing a previous $20 million contract. Delivery is complete, and revenue recognition is slated for the first quarter of fiscal year 2024.
In terms of the trailing-12-month asset turnover ratio, GEOS’ 0.94x is 80.9% higher than the 0.52x industry average. Its 14.93% trailing-12-month Return on Total Assets is 121.3% higher than the 6.74% industry average. Additionally, its 7% trailing-12-month levered FCF margin is 8.5% higher than the 6.46% industry average.
GEOS’ total revenue for the fiscal first quarter that ended December 31, 2023, increased 60.8% over the prior-year quarter to $50.03 million. The company’s gross profit rose 111.1% year-over-year to $22.24 million.
For the same quarter, its net income and net income per share stood at $12.68 million and $0.94 per share, respectively, compared to the year-ago quarter’s net loss of $97 thousand and $0.01 per share.
Over the past nine months, GEOS’ stock has gained 71.4% to close the last trading session at $13.54.
GEOS’ positive outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has an A grade for Growth and a B for Value, Momentum, and Quality. It is ranked #3 in the Energy - Services industry. To see GEOS’ Stability and Sentiment ratings, click here.
Gulf Island Fabrication, Inc. (GIFI)
GIFI is a fabricator of steel structures and modules in the United States. It operates through the Services, Fabrication, and Shipyard divisions. The company provides various services, including maintenance, construction, and fabrication of steel structures, project management, commissioning, civil construction, staffing, and offshore platform support.
In terms of the trailing-12-month asset turnover ratio, GIFI’s 1.15x is 121.2% higher than the 0.52x industry average.
GIFI’s adjusted revenue for the fiscal fourth quarter, which ended on December 31, 2023, grew 16.4% year-over-year to $43.99 million. The company’s adjusted gross profit rose 77.3% from the year-ago value to $8.37 million. Its new project rewards were $44.40 million, up 17% year-over-year.
Moreover, GIFI’s net income and net income per share increased considerably over the prior-year quarter to $288.35 million and $0.74, respectively.
For the quarter ending March 31, 2024, GIFI’s EPS is expected to increase 100% year-over-year to $0.08. Over the past nine months, the stock has gained 96.8% to close the last trading session at $6.65.
GIFI’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Growth and Sentiment and a B for Momentum. Within the Energy - Drilling industry, it is ranked #2 out of 15 stocks. In total, we rate GIFI on eight different levels. Beyond what we stated above, we also have given GIFI grades for Value, Stability, and Quality. Get all the GIFI ratings here.
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DNOW shares were trading at $15.22 per share on Tuesday afternoon, down $0.21 (-1.36%). Year-to-date, DNOW has gained 34.45%, versus a 9.12% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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