With talks of energy transition ending in a stalemate and without consensus on the phase-out of fossil fuels, the prospects of the conventional energy sector in the foreseeable future look robust, further aided by increased summer travel, constrained supplies due to turbulent geopolitics, and OPEC+ production cuts.
The consequent tailwinds for quality energy stocks HF Sinclair Corporation (DINO), Weatherford International plc (WFRD), and CVR Energy, Inc. (CVI) have understandably kept investors in hot pursuit.
Consumers are now going above and beyond to compensate for the years spent indoors trying to out-of-home experiences with virtual ones. As a result, air carriers are turning to bigger airplanes, even on shorter routes, and jumbo-jets, such as the Boeing 747 and the Airbus A380, are being brought back to help ease airport congestion and work around pilot shortages.
Moreover, Saudi Arabia-led OPEC+ surprise announcement of a cut of more than a million barrels of output a day, in addition to a reduction of 2 million barrels a day agreed upon in October 2022, has taken about 3% of the world’s petroleum production taken off the market in seven months.
The redrawing of the global energy map and shifting geopolitical inclinations in the Middle East since the beginning of the conflict in Ukraine has been nothing short of a windfall for U.S. energy producers. The U.S. has “gone from (being) a very domestically focused market into an international powerhouse.”
American crude oil production is going through a purple patch and is set to have a record-breaking couple of years. The EIA forecasts that U.S. crude oil production will average 12.4 million bpd in 2023 and 12.8 million bpd in 2024. This has been countering OPEC+ production cuts and keeping prices in check.
The U.S. Senate last week voted to block China from purchasing oil from the Strategic Petroleum Reserve. Moreover, last weekend, the G20 Energy Transitions Working Group, representing economies accounting for more than three-quarters of global emissions and economic output, met in Goa, India. Although some members emphasized the importance of making efforts towards phasing down unabated fossil fuels, the meeting ended without a consensus on the phase-out.
Hence, in the absence of unanimity in a turbulent and fractured geopolitical environment, fossil fuels could continue to play a significant role in the global energy mix to eradicate energy poverty and meet the growing energy demand in the foreseeable future. This could benefit conventional energy producers as well as the businesses serving them.
With the above context, let’s take a closer look at the featured stocks.
HF Sinclair Corporation (DINO)
As an independent petroleum refiner, DINO produces and markets high-value light products such as gasoline, diesel fuel, jet fuel, renewable diesel, and other specialty products.
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. The former proposed to effect the transaction at a fixed exchange ratio of 0.3714 of its newly issued shares per each publicly held common unit of the latter.
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. During the same period, the company’s operating income increased by 116.8% year-over-year to $504.21 million, while its adjusted EBITDA increased 87.1% year-over-year to $704.75 million.
Consequently, the adjusted net income attributable to DINO stockholders grew 124.4% and 102% year-over-year to $394.09 million, or $2 per share, respectively.
DINO’s trailing-12-month gross profit and net income margins of 14.16% and 8.13% surpass the respective 5-year averages of 11.07% and 3.41%. Moreover, its trailing-12-month Return on Capital Employed (ROCE), Return on Total Capital (ROTC), and Return on Total Assets (ROTA) of 35.49%, 20.16%, and 17.31% also exceed the industry averages of 23.48%, 11.21%, and 9.16%, respectively.
DINO has surpassed consensus EPS estimates in three of the trailing four quarters. The stock has gained 16.7% over the past month to close the last trading session at $50.28.
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.
DINO also has B grades for Value, Momentum, and Quality. It is ranked #6 of 89 stocks in the Energy – Oil & Gas industry.
Click here for additional ratings for DINO’s Growth, Stability, and Sentiment.
Weatherford International plc (WFRD)
As a global energy services company, WFRD is an energy services company that offers equipment and services for the drilling, evaluation, completion, production, intervention and responsible abandonment of oil and natural gas exploration and production and new energy industries.
WFRD operates through three segments: Drilling and Evaluation (DRE); Well Construction and Completions (WCC); and Production and Intervention (PRI).
On July 12, WFRD announced that it had been awarded a 5-year contract to provide intervention services for Petróleo Brasileiro S.A. – Petrobras (PBR) in Brazil. This contract would further more than two decades of collaboration with PBR by providing its state-of-the-art digitalization solution, the Centro™ well construction optimization platform, which provides exceptional visibility and performance in operations.
WFRD’s intervention solutions would extend the life of PBR’s assets while reducing the non-productive time.
On June 8, WFRD announced that it had been awarded a three-year contract with Aramco to deliver drilling services. Under the deal, WFRD would deploy its Drilling Services portfolio, which includes a suite of technology that combines world-class services, real-term information analysis, and innovative drilling tools.
Deploying these offerings would add value to Aramco’s drilling operations by minimizing operating expenditure, reducing risks, and optimizing production.
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 adjusted EBITDA grew 78.1% from the year-ago value to $269 million. Consequently, the net income attributable to WFRD was $72 million or $0.97 per share, compared to a net loss of $80 million or $1.14 per share during the previous-year quarter.
WFRD’s trailing-12-month gross profit and EBITDA margins of 31.78% and 20.16% are significantly above the respective 5-year averages of 20.78% and 10.25%. Moreover, its trailing-12-month ROCE and ROTC of 36.97% and 12.13% also exceed the industry averages of 23.48% and 11.21%, respectively.
Ahead of its earnings release on July 26, WFRD expects its revenue and EPS for the fiscal second quarter that ended June 30, 2023, to increase 17% and 1735% year-over-year to $1.24 billion and $1.18, respectively. The company has also impressed by surpassing consensus EPS estimates in each of the trailing four quarters.
For the fiscal year ending December 31, 2023, WFRD’s revenue and EPS are expected to increase by 14.9% and 1190.4% year-over-year to $4.98 billion and $4.65, respectively. Both metrics are expected to improve by a further 8.8% and 30.8% year-over-year to $5.41 billion and $6.08, respectively.
WFRD’s stock has gained 19.4% over the past month and 39.1% over the past six months to close the last trading session at $76.94.
WFRD’s robust outlook is reflected by its overall rating of B, which translates to a Buy in our proprietary rating system. It has an A grade for Growth and Momentum and a B for Sentiment and Quality.
WFRD is ranked #2 of 89 stocks in the Energy - Oil & Gas industry. Additional ratings for WFRD’s Value and Stability are available here.
CVR Energy, Inc. (CVI)
CVI is a diversified holding company with interests in renewable fuels, petroleum refining and marketing, and fertilizer manufacturing. The company operates through two segments: Petroleum and Nitrogen Fertilizer.
On June 13, CVI announced that, after due consideration of the current market conditions, the board has decided against pursuing a potential spin-off of its nitrogen fertilizer business at this point in time in the interest of the company’s shareholders.
CVI also updated that the pre-treatment unit at Wynnewood remains on track for mechanical completion in the late fiscal 2023 third quarter, promising enhanced renewables capture rate and profitability for the company.
For the fiscal first quarter that ended March 31, 2023, CVI’s operating income increased by 50% year-over-year to $330 million, while its adjusted EBITDA increased 115.5% year-over-year to $334 million. Consequently, CVI announced net income of $195 million, or $1.44 per share, on an adjusted basis, compared to $94 million, or $0.02 on an adjusted basis, during the previous-year quarter.
CVI’s trailing-12-month gross profit and net income margins of 14.18% and 5.22% surpass the respective 5-year averages of 10.06% and 1.94%. Moreover, its trailing-12-month ROCE, ROTC, and ROTA of 85.52%, 26.75%, and 13.40% also exceed the industry averages of 23.48%, 11.21%, and 9.16%, respectively.
CVI has surpassed consensus EPS estimates in each of the trailing four quarters. Its stock has gained 26.1% over the past month to close the last trading session at $35.03.
CVI’s positive outlook is reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
CVI has an A grade for Quality and a B grade for Momentum. It is ranked #14 in the same industry.
Click here to access additional CVI ratings for Growth, Value, Stability, and Sentiment.
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DINO shares were trading at $49.94 per share on Tuesday afternoon, down $0.34 (-0.68%). Year-to-date, DINO has declined -1.82%, versus a 20.04% 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.
3 Quality Energy Stock Buys Investors Are Pursuing StockNews.com
