The energy sector’s outlook looks promising amid elevated summer travel, uncertain geopolitical conditions restricting supplies, and production cuts. Given this backdrop, quality energy stocks HF Sinclair Corporation (DINO), ARC Resources Ltd. (AETUF), and Weatherford International plc (WFRD) could be prudent investment opportunities now.
The removal of pandemic-related international travel restrictions led to a surge of Americans embarking on foreign trips. Planned air arrivals for July and August of 2023 skyrocketed by an impressive 14.4%, surpassing 2019 levels by approximately 5%. The escalated international air travel has spurred airlines to augment their fleet size with larger aircraft, and jumbo jets are being reestablished to manage burgeoning airport congestion.
Energy analysts at Capital Economics have identified jet fuel as the principal component propelling oil demand growth in 2023. International Air Transport Association (IATA) forecasts global jet fuel consumption to rise by nearly 15% in 2023 to 7.3 million bpd.
As per the latest data by the Joint Organizations Data Initiative (JODI), the global oil demand witnessed a notable upsurge by more than 3 million barrels per day (bpd) in May 2023, compared to April, largely driven by a demand surge in China, coupled with uplifts noted in India, Saudi Arabia, and the United States.
Additionally, OPEC’s latest Monthly Oil Market Report shows that crude oil demand is expected to hit 29.4 million bpd in 2023, marking an increase of 100,000 bpd from its previous forecast.
Moreover, coupled with the sweeping oil production cuts by the world’s largest oil exporters, Saudi Arabia and Russia, Saudi Arabia's decision to extend its unilateral production cut has effectively tightened the market and could push the prices up. Unforeseen supply disruptions emanating from regions like Libya and Nigeria further bear the potential to escalate crude prices going forward.
Furthermore, amid increasingly bullish fundamentals, ING strategists said, “A break above $80/bbl would see the market finally breaking out of the $70-80/bbl range that it has been stuck in for more than two months.” Also, as per the U.S. Energy Information Agency’s Short-Term Energy Outlook, crude oil prices are anticipated to reach about $80/b in the fourth quarter of 2023 and about $84/b in 2024.
Given the tailwinds, fundamentally sound energy stocks DINO, AETUF, and WFRD could be worthy portfolio additions now.
HF Sinclair Corporation (DINO)
DINO operates as an independent energy company. It produces and markets gasoline, diesel fuel, jet fuel, renewable diesel, specialty lubricant products, specialty chemicals, specialty and modified asphalt, and others.
On May 4, DINO submitted a non-binding proposal to acquire all the outstanding common units of Holly Energy Partners, L.P. (HEP) in exchange for common stock, a par value of $0.01 per share.
In May, DINO’s board of directors declared a regular quarterly dividend of $0.45 per share, which was paid to the common stockholders on June 1. This reflects its shareholder payback abilities.
The company pays an annual dividend of $1.80 per share, translating to a 3.91% yield on the current share price. Its four-year average dividend yield is 3.06%. The company’s dividend payouts have grown at a CAGR of 7.2% over the past three years and 5.2% over the past five years.
DINO’s incoming CEO, Tim Go, said, "We returned over $333 million in cash to shareholders through buybacks and dividends, demonstrating our commitment to our capital return strategy.”
DINO’s forward non-GAAP P/E of 5.90x is 37% lower than the 9.37x industry average. Likewise, its forward EV/Sales multiple of 0.39 is 80.3% lower than the 1.99x industry average.
DINO’s trailing-12-month levered FCF margin of 6.40% is 10.6% higher than the industry average of 5.79%. Moreover, its trailing-12-month ROCE, ROTC, and ROTA of 35.49%, 20.16%, and 17.31% are 51.2%, 79.8%, and 95.1% higher than the industry averages of 23.48%, 11.21%, and 8.87%, respectively.
For the fiscal first quarter that ended March 31, 2023, DINO’s sales and other revenues increased 1.4% year-over-year to $7.57 billion. DINO’s adjusted EBITDA increased 87.1% year-over-year to $704.75 million.
Adjusted net income attributable to DINO stockholders grew 124.4% year-over-year to $394.09 million, while its adjusted earnings per share came in at $2, representing a 102% increase from the prior-year quarter.
Analysts expect DINO’s revenue and EPS for the fiscal third quarter ending September 2023 to come in at $7.81 billion and $2.35, respectively. It surpassed the consensus revenue estimate in each of the trailing four quarters, which is impressive.
The stock gained 1.1% intraday to close the last trading session at $46.58. Over the past year, the stock has gained 3.7%.
DINO’s solid prospects are reflected in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Value, Momentum, and Quality. In the 89-stock Energy – Oil & Gas industry, it is ranked #15.
Click here for DINO’s additional Growth, Stability, and Sentiment ratings.
ARC Resources Ltd. (AETUF)
Headquartered in Calgary, Canada, AETUF explores, develops, and produces crude oil, natural gas, condensate, and natural gas liquids in Canada. It primarily interests the Montney properties in northeast British Columbia and northern Alberta.
AETUF is expected to pay a dividend of $0.17 per share to shareholders on July 17, 2023. Its annual dividend of $0.51 yields 3.70% on the current share price. Its four-year average yield is 4.88%. The company’s dividend payouts have grown at a CAGR of 6.7% over the past three years.
AETUF’s forward EV/EBITDA of 4.13x is 22.8% lower than the 5.35x industry average. Its forward EV/EBIT multiple of 7.45 is 11.8% lower than the 8.44 industry average.
AETUF’s trailing-12-month gross profit margin of 65.28% is 38.8% higher than the 47.05% industry average. Likewise, its 61.50% trailing-12-month EBITDA margin is 57.2% higher than the industry average of 39.12%.
For the fiscal first quarter that ended March 31, 2023, AETUF’s revenue from commodity sales stood at CAD$1.65 billion ($1.25 billion). The company’s net income and net income per share came in at CAD 574.90 million ($435.81 million) and $0.93, compared to net loss and net loss per share of CAD$69.40 million ($52.61 million) and $0.10, respectively, in the year-ago quarter.
Moreover, as of March 31, 2023, AETUF’s current liabilities stood at CAD$1.03 billion ($779.52 million), compared to CAD$1.72 billion ($1.30 billion) as of December 31, 2022.
AETUF has increased its production guidance in 2023 to average between 350,000 and 355,000 barrels of oil equivalent (boe) per day. The increase reflects stronger than forecast production from its base assets.
Analysts expect AETUF’s revenue and EPS for the fiscal year ending December 2023 to come in at $4.05 billion and $1.80, respectively. On the other hand, its EPS for the fiscal year ending December 2024 is expected to increase 2.2% year-over-year to $1.84, while its revenue is expected to reach $3.99 billion for the same period. Moreover, it surpassed Street EPS estimates in each of the trailing four quarters.
AETUF’s stock has gained 3.5% intraday to close the last trading session at $14.36. Over the past year, the stock has gained 19.1%.
It’s no surprise AETUF has an overall rating of B, equating to a Buy in the POWR Ratings system.
AETUF has a B grade for Quality. It is ranked #20 within the Energy – Oil & Gas industry.
To access AETUF’s ratings for Growth, Value, Momentum, Stability, and Sentiment, click here.
Weatherford International plc (WFRD)
Energy services company WFRD offers equipment and services for the drilling, evaluation, completion, production, and intervention of oil, geothermal, and natural gas wells globally. The company operates through three segments: Drilling and Evaluation; Well Construction and Completions; and Production and Intervention.
On July 12, WFRD was awarded a five-year contract to provide Intervention Services for Petróleo Brasileiro S.A. in Brazil. WFRD has performed Intervention Services in Brazil for more than 20 years in close cooperation with Petrobras to develop a comprehensive offering to address subsea intervention and commissioning.
To enhance this offering, WFRD will provide its state-of-the-art digitalization solution, the Centro™ well construction optimization platform, which provides exceptional visibility and performance in operations. This should bode well for the company.
On June 8, WFRD was awarded a three-year contract with Aramco to deliver drilling services, under which WFRD would deploy its Drilling Services portfolio. This includes a technology suite, combining premium services, real-term information analysis, and innovative drilling apparatus. This would add value to Aramco’s drilling operations. Also, this award showcases the value of WFRD’s comprehensive portfolio of drilling services and technologies.
WFRD’s forward EV/Sales of 1.41x is 30% lower than the 2.02x industry average, while the stock’s forward Price/Sales multiple of 1.10 is 21.3% lower than the industry average of 1.40.
The company’s trailing-12-month levered FCF margin of 8.93% is 54.3% higher than the 5.79% industry average. Likewise, its trailing-12-month asset turnover ratio of 0.97x is 50.9% higher than the industry average of 0.65x.
For the first quarter that ended March 31, 2023, WFRD’s total revenues increased 26.4% year-over-year to $1.19 billion, while its operating income stood at $185 million, up 927.8% from the prior-year quarter.
The company’s adjusted EBITDA grew 78.1% from the year-ago value to $269 million. In addition, net income attributable to WFRD and income per share stood at $72 million and $0.97, compared to a net loss and loss per share of $80 million and $1.14, respectively, in the prior-year quarter.
The consensus EPS estimate of $4.65 for the fiscal year ending December 2023 indicates a significant year-over-year increase. The consensus revenue estimate of $4.98 billion for the same period indicates a 14.9% year-over-year growth. Moreover, WFRD topped consensus EPS and revenue estimates in each of the trailing four quarters.
WFRD’s stock has gained 17.7% over the past three months to close the last trading session at $76.25. Over the past year, the stock has gained 314%.
WFRD’s POWR Ratings reflect a robust outlook. It has an overall rating of B, equating to a Buy in our proprietary rating system.
WFRD has an A grade for Growth and Momentum and B for Sentiment and Quality. It is ranked #2 within the same industry.
Beyond what we have highlighted above, one can see WFRD’s additional POWR Ratings for Value and Stability here.
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DINO shares were unchanged in premarket trading Wednesday. Year-to-date, DINO has declined -8.43%, versus a 19.66% 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.
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