Aggressive interest-rate hikes by the Federal Reserve during 2022 seem to be having their consequence. In line with the Dow Jones estimate, the core Personal Consumption Expenditure (PCE) for December, which excludes more volatile food and energy prices, increased 4.4% from a year ago, down from the 4.7% reading in November. That was the slowest annual rate of increase since October 2021.
However, the Central Bank’s fight against stubbornly high inflation with interest rate hikes isn’t sans its unintended consequences and collateral damage. Consumer spending during the holiday month registered a 0.2% decline, missing the modest Street estimates of 0.1%.
The recent data and the less-than-optimistic guidance for 2023 provided by various corporations in their latest earnings releases seem to be bellwethers of an imminent slowdown in an economy that has proved its robustness with a tight labor market and a higher-than-expected GDP growth rate thus far.
In such a scenario, even a moderated interest rate hike of 25 bps by a justifiably cautious Federal Reserve may induce yet another bout of panic and volatility. Hence, it could be wise to invest in Select Energy Services, Inc. (WTTR), Overseas Shipholding Group, Inc. (OSG), and Adams Resources & Energy, Inc. (AE), which have stood out because of their solid momentum.
Select Energy Services, Inc. (WTTR)
As a holding company, WTTR provides full lifecycle water and chemical solutions to the oil and gas industry through its subsidiaries. Its operating segments include Water Services; Water Infrastructure; and Oilfield Chemicals.
On January 27, WTTR announced its quarterly cash dividend of $0.05 per share of Class A common stock, to be paid on February 17, to holders of record as of the close of business on February 7, 2023.
WTTR paid $0.05 per share annually as dividends. This translates to a trailing-12-month dividend yield of 0.59%, higher than the 4-year average dividend yield of 0.03%.
On November 1, 2022, WTTR completed the acquisition of Breakwater Energy Partners, LLC (Breakwater) through a stock-for-stock transaction. The latter is a leading provider of contracted water recycling and infrastructure solutions in the Permian Basin,
WTTR expects Breakwater’s recycling footprint to help expand its own recycling capabilities to nearly 3 million barrels of total daily capacity across fixed and mobile capabilities while adding a number of new strategic customer relationships and strengthening existing relationships.
Also, on November 1, WTTR acquired the Bakken Shale water gathering pipeline and disposal assets from Cypress Environmental Services, LLC (Cypress). WTTR expects this value acquisition to further consolidate the Bakken region following its previous Agua Libre Midstream and Nuverra acquisitions.
On a combined basis, the acquired operations from Breakwater and Cypress are expected to generate approximately $110-$115 million of revenue and more than $30 million of Adjusted EBITDA on a 2022 full-year basis, with a strong trajectory and room for growth in 2023.
For the third quarter of fiscal 2022, which ended September 30, 2022, WTTR’s total revenue increased 83.3% year-over-year to $375.07 million. During the same period, the company’s gross profit and adjusted EBITDA increased 554.9% and 314.7% year-over-year to $58.84 million and $62.78 million, respectively.
The quarterly net income attributable to WTTR came in at $21.32 million, or $0.23 per share, compared to a net loss of $12.04 million, or $0.14, in the year-ago quarter.
For the fiscal year ended December 31, 2022, WTTR’s revenue is expected to come in at $1.39 billion, representing an increase of 82.4% year-over-year, while its EPS is expected to come in at $0.75, compared to a loss of $0.41 during the previous fiscal. Revenue and EPS are expected to increase 24.3% and 92.7% to $1.73 billion and $1.44, respectively.
The stock is currently trading above its 50-day and 200-day moving averages of $8.48 and $7.87, respectively. It has gained 16% over the past six months and 29.8% over the past year to close the last trading session at $8.50.
WTTR’s solid fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates 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.
WTTR has an A grade for Momentum and a B for Growth, Value, and Sentiment. It is ranked #13 of 43 stocks in the B-rated Energy - Services industry.
Click here for additional POWR Ratings for WTTR’s Stability and Quality.
Overseas Shipholding Group, Inc. (OSG)
As an energy transporter, OSG owns and operates a fleet of oceangoing vessels engaged in transporting crude oil and petroleum products. The company charters its vessels to customers for voyages for specific periods at fixed daily amounts through time charters and for specific voyages at spot rates.
On December 8, 2022, OSG announced that it had exercised options to extend its six bareboat charter agreements with American Shipping Company ASA (AMSC) for an additional three-year term, beginning in December 2023. With these extensions, seven vessels will continue on lease from AMSC as key contributors to OSG’s steady and robust earnings.
On November 15, OSG announced that it had agreed to purchase five million shares of the company’s common stock from Cyrus Capital at $2.86 per share for a total of $14.30 million. The transaction, demonstrating the company’s confidence in its prospects, was supposed to be completed on the same day.
Sam Norton, the President and CEO of OSG, stated, “The price paid in this share purchase equates to an enterprise value of roughly 4.5 times expected 2022 adjusted EBITDA, an implied valuation which we consider to be very attractive.”
During the third quarter of the fiscal year that ended September 30, 2022, OSG’s shipping revenues increased 31% year-over-year to $123.06 million, while its operating income came in at $22.43 million, compared to an operating loss of $5.64 million during the previous-year quarter.
During the same period, the company’s net income came in at $13.25 billion or $0.15 per share, compared to a net loss of $16 million or $0.18 per share during the third quarter of last fiscal.
The stock has gained 23.7% over the past month and 61.4% over the past six months to close the last trading session at $3.68, above its 50-day and 200-day moving averages of $3.07 and $2.68, respectively.
OSG’s strong fundamentals are reflected in its overall A rating, which translates to a Strong Buy in our POWR Ratings system. It also has an A grade for Momentum and Quality and a B for Growth, Value, and Sentiment.
Unsurprisingly, OSG tops the list of 46 stocks in the A-rated Shipping industry.
Click here for all ratings of OSG.
Adams Resources & Energy, Inc. (AE)
AE is primarily involved in the marketing, transportation, terminal ling, and storage of the various crude oil and natural gas basins in the United States. The company operates through three segments: Crude Oil Marketing, Transportation, and Storage; Tank truck Transportation of Liquid Chemicals, Pressurized Gases, Asphalt, and Dry Bulk; and Pipeline Transportation, Terminalling, and Storage of Crude Oil.
On December 16, AE paid its quarterly cash dividend of $0.24 per common share. The company pays $0.96 annually as dividends, which translates to a yield of 2% at the current price. Dividend payouts have grown at 1.8% CAGR over the past five years.
On November 1, AE announced the repurchase of all the shares of AE common stock owned by KSA Industries, Inc., the company’s largest stockholder, and members of the family of the late Kenneth Stanley Adams, Jr., the company’s founder, who are affiliated with KSA.
With this transaction, AE made a significant return of capital to its existing shareholders and increased the intrinsic value of their stake in the company.
For the fiscal 2022 third quarter ended September 30, AE’s total revenues increased 50.1% year-over-year to $852.90 million. The company’s operating earnings rose 30.1% from the year-ago value to $2.99 million. In addition, its adjusted net earnings came in at $4.71 million or $1.06 per share, up 168.6% and 158.5% year-over-year, respectively.
Analysts expect AE’s revenue for the fiscal year 2022 (ended December 2022) to come in at $3.46 billion, representing a 70.4% rise from the last year. Also, Street expects the company’s EPS for the same period to come in at $3.37, representing an increase of 22.6% year-over-year. It is expected to increase by a further 19% to $4.01 during this fiscal year.
AE’s stock has gained 21.8% over the past month and 52.6% over the past six months to close the last trading session at $48.18, above its 50-day and 200-day moving averages of $41.45 and $35.19, respectively.
AE’s overall rating of B translates to a Buy in our POWR Ratings system. It has an A grade for Momentum and Sentiment and a B for Quality and Value.
AE is ranked #7 of 93 stocks in the B-rated Energy - Oil & Gas industry. Get additional ratings for AE’s Growth and Stability here.
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WTTR shares were trading at $8.45 per share on Monday morning, down $0.05 (-0.59%). Year-to-date, WTTR has declined -8.55%, versus a 5.69% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
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