The oil & gas industry is primed for massive expansion in the upcoming years, driven by increased oil production and soaring demand for energy worldwide.
Therefore, quality oil & gas stocks Ultrapar Participações S.A. (UGP), Delek US Holdings, Inc. (DK), and Martin Midstream Partners L.P. (MMLP) could be solid portfolio additions now.
World Bank officials anticipate a surge in oil prices if the violence between Israel and Hamas escalates, expecting crude prices to rise to a record high of $150 a barrel.
Moreover, natural gas production is expected to increase in an attempt to reduce carbon and methane emissions. Certified natural gas and carbon-neutral LNG are expected to continue growing momentum this year.
EIA’s short-term energy outlook shows dry gas production reaching 105.1 billion cubic feet per day (bcf/d) in 2024, while crude oil production is projected to rise to 13.17 million barrels per day in the last quarter of 2023 and 13.15 million barrels per day in 2024.
Some forecasts show that world oil demand will reach 106.90 thousand barrels per day (mbd) by 2030, an increase of 5.5 mbd from 2023 levels. The U.S. oil and gas market is expected to grow at a CAGR of more than 3% by 2027.
With these favorable trends in mind, let's delve into the fundamentals of the three energy sector stocks.
Ultrapar Participações S.A. (UGP)
Headquartered in São Paulo, Brazil, UGP operates in the energy and infrastructure business. It operates in five segments: Gas distribution (Ultragaz); Fuel distribution (Ipiranga); Chemicals (Oxiteno); Storage (Ultracargo); and Drugstores (Extrafarma).
On September 5, UGP paid a dividend of $0.05 per common share. Its annualized dividend of $0.07 per share translates to a dividend yield of 1.42% on the current share price. Its four-year average yield is 3.05%.
UGP’s trailing-12-month cash per share of $1.10 is 22.1% higher than the industry average of $0.90, while its trailing-12-month asset turnover ratio of 3.65x is 566.1% higher than the industry average of 0.55x.
In the fiscal third quarter that ended September 30, 2023, UGP’s net revenues from sales and services stood at R$32.48 billion ($6.62 billion), while gross profit increased 80.9% year-over-year to R$2.86 billion ($584.03 million).
For the same quarter, net income attributable to shareholders of UGP and earnings per share stood at R$864.90 million ($176.35 million) and R$0.79, up significantly from the prior-year quarter, respectively.
Moreover, adjusted EBITDA stood at R$2 billion ($408.01 million), up 138.7% year-over-year.
Street expects UGP’s EPS in the fiscal year ending December 2023 to increase 167.4% year-over-year to $0.22. Its revenue is expected to be $25.85 billion.
The stock has gained 105% year-to-date to close the last trading session at $4.96. Over the past year, it gained 98.4%.
UGP’s POWR Ratings reflect its positive prospects. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has an A grade for Value and a B for Sentiment. Within the A-rated Foreign - Oil & Gas industry, it is ranked #4 out of 43 stocks.
To see additional POWR Ratings for Growth, Momentum, Stability, and Quality for UGP, click here.
Delek US Holdings, Inc. (DK)
DK is focused on petroleum refining; the transportation, storage and wholesale distribution of crude oil, intermediate and refined products; and convenience store retailing. The company operates through three segments: Refining; Logistics; and Retail.
On November 20, DK paid a quarterly dividend of $0.24 per share. Its annualized dividend of $0.93 per share translates to a dividend yield of 3.38% on the current share price. Its four-year average yield is 3.30%.
During the third quarter, DK returned $40.2 million to shareholders through dividends and share buybacks and returned $130.3 million of capital year-to-date. In addition, it repurchased $20 million in shares.
DK’s trailing-12-month asset turnover ratio of 2.13x is 289.3% higher than the industry average of 0.55x, while its trailing-12-month cash per share of $13.94 is significantly higher than the industry average of $0.90.
In the fiscal third quarter that ended September 30, 2023, DK’s net revenues stood at $4.75 billion, while operating income increased 324% year-over-year to $224.70 million. Moreover, its adjusted EBITDA stood at $345.10 million.
For the same quarter, adjusted net income and adjusted net income per share stood at $131.90 million and $2.02, respectively. As of September 30, 2023, DK’s total long-term debt stood at $2.64 billion, compared to $3.05 billion as of December 31, 2022.
Street expects DK’s revenue and EPS in the fiscal fourth quarter ending December 2023 to be $3.29 billion and $0.06, respectively. The company surpassed consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.
The stock has gained 17.9% over the past six months to close the last trading session at $27.34. Over the past month, it has gained 8.4%.
DK’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
DK has an A grade for Growth and a B for Value. Within the 85-stock Energy - Oil & Gas industry, it is ranked #16.
Beyond what we’ve stated above, we have also rated the stock for Momentum, Stability, Sentiment, and Quality. Get all ratings of DK here.
Martin Midstream Partners L.P. (MMLP)
MMLP provides terminalling, processing, storage, and packaging services for petroleum products and by-products. The company operates in four segments: Terminalling and Storage; Transportation; Sulfur Services; and Natural Gas Liquids.
On November 14, MMLP paid a quarterly cash distribution of $0.01 per unit. Its annualized dividend of $0.02 per share translates to a dividend yield of 0.83% on the current share price. Its four-year average yield is 9.37%.
MMLP’s trailing-12-month asset turnover ratio of 1.51x is 176.5% higher than the industry average of 0.55x, while its trailing-12-month levered FCF margin of 12.83% is 120.8% higher than the industry average of 5.81%.
In the fiscal third quarter that ended September 30, 2023, MMLP’s total revenues stood at $176.70 million, while adjusted EBITDA stood at $26.17 million, up 39.1% year-over-year. Its operating income came at $14.70 million, compared to an operating loss of $12.24 million in the prior year quarter.
For the nine months that ended September 30, net cash provided by operating activities came at $106.07 million, compared to net cash used in operating activities of $16.76 million in the prior year period.
As of September 30, 2023, MMLP’s total current liabilities stood at $80.98 million, compared to $110.93 million as of December 31, 2022.
The stock has gained 8% over the past six months to close the last trading session at $2.47. Over the past month, it has gained 3%.
MMLP’s robust prospects are reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
MMLP has a B grade for Growth, Value, and Quality. It is ranked #2 within the A-rated 26-stock MLPs – Oil & Gas industry.
Click here for the additional POWR Ratings for MMLP (Momentum, Stability, and Sentiment).
What To Do Next?
Get your hands on this special report with 3 low priced companies with tremendous upside potential even in today’s volatile markets:
3 Stocks to DOUBLE This Year >
UGP shares were unchanged in premarket trading Monday. Year-to-date, UGP has gained 108.86%, versus a 20.38% 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.
3 Surging Oil & Gas Stocks to Buy Now StockNews.com
