The energy sector is poised to sustain its growth trajectory, supported by the escalating worldwide demand for oil and gas and production cuts. Therefore, quality energy stocks Gibson Energy Inc. (GBNXF), Graham Corporation (GHM), and Geospace Technologies Corporation (GEOS) could be solid buys now.
The energy sector’s fundamentals remain robust despite broad economic concerns and geopolitical turbulence. The International Energy Agency’s (IEA) latest energy report revealed that global oil demand rose by 3.26 million barrels per day in the second quarter of 2023, setting a new record of 103 mb/d.
This increase resulted from robust summer air travel, which elevated power generation oil usage. This, along with a resurgence in Chinese petrochemical activities, is predicted to propel global oil demand growth by 2.2 mb/d to 102.2 mb/d in 2023, marking a highest-ever annual level, with China accounting for over 70% of this surge.
Physical oil markets persistently exhibit signs of vigor, with Asian refineries projected to escalate imports while crude oil inventories are falling. Price Futures Group’s analyst Phil Flynn said, "It shows that refiners are really struggling to keep up with demand, not just domestically but globally. That led to a decline in crude inventories.”
Further impacting supply and demand dynamics are production cuts induced by OPEC+ and Russia, which may keep oil prices elevated in the months ahead. Commodity analysts at Standard Chartered expect these effective producer restrictions to stimulate conditions ripe for a price rally, which could see Brent prices reaching $100 per barrel in the fourth quarter of 2023.
Adding to the supply pressure are worker strikes at Australia's liquefied natural gas (LNG) facilities, which contribute to more than a 10th of global LNG output, and a drought-triggered backlog in the Panama Canal. These factors could trigger further increments in oil prices.
Considering these conducive industry trends, investors could now opt for quality energy stocks GBNXF, GHM, and GEOS.
Gibson Energy Inc. (GBNXF)
Headquartered in Calgary, Canada, GBNXF, a liquids infrastructure company, gathers, stores, optimizes, processes, and markets liquids and refined products in North America. It operates through two segments, Infrastructure and Marketing.
On August 1, GBNXF announced the closing of the acquisition of 100% of the membership interests of South Texas Gateway Terminal LLC for $1.1 billion, through which GBNXF will acquire the South Texas Gateway Terminal (STGT).
STGT is a world-class liquids terminal and export facility in Ingleside, Texas, with extensive crude carrier capabilities and direct pipeline connections to the prolific Permian and Eagle Ford basins. The highly strategic acquisition would reinforce GBNXF’s position as a leading liquids-focused infrastructure business.
GBNXF has scheduled the quarterly dividend payment of $0.39 per common share to shareholders on October 16, 2023. Its annual dividend of $1.18 yields 7.96% on the current share price. The company’s dividend payouts have increased at 4.4% and 1.8% CAGRs over the past three and five years, respectively. Its four-year average yield is 6.13%.
GBNXF’s trailing-12-month ROCE and ROTC of 47.53% and 11.16% are 120.5% and 7.3% higher than the industry averages of 21.56% and 10.40%, respectively. Its trailing-12-month asset turnover ratio of 2.75x is 350.5% higher than the industry average of 0.61x.
GBNXF’s revenue has grown at 19.7% and 9.8% CAGRs over the past three and five years, respectively. Moreover, over the past five years, its EBITDA and EBIT have grown at 15.7% and 28.3% CAGRs, respectively.
For the fiscal second quarter that ended June 30, 2023, GBNXF’s revenue stood at C$2.61 billion ($1.94 billion), while its gross profit rose 28.6% over the prior-year quarter to C$94.78 million ($70.32 million). The company’s net income increased 44.8% year-over-year to C$52.03 million ($38.60 million), while its earnings per share stood at C$0.37, representing an increase of 54.2% year-over-year.
As of June 30, 2023, the company’s total current assets stood at C$1.35 billion ($998.67 million), compared to C$821.52 million ($609.52 million) as of December 31, 2022.
For the fiscal third quarter ending September 2023, its revenue is expected to increase 4.7% year-over-year to $2.04 billion, while for the year ending December 2023, revenue is expected to come at $6.65 billion. It has surpassed the consensus revenue in each of the trailing four quarters, which is impressive.
Over the past five days, the stock has gained 1% to close the last trading session at $14.78. It gained 2.3% intraday.
GBNXF’s POWR Ratings reflect a robust outlook. It has an overall rating of B, translating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has a B grade for Growth, Momentum, Stability, and Quality. Within the B-rated Energy – Services industry, it is ranked #3 out of 46 stocks.
To see the other ratings of GBNXF for Value and Sentiment, click here.
Graham Corporation (GHM)
GHM designs and manufactures fluid, power, heat transfer, and vacuum technologies for the defense, space, energy, and process industries. It offers products for power plant systems, torpedo ejection and power systems, thermal management systems, power generation systems, chemical and petrochemical processing, and cooling systems.
On August 7, GHM announced that it had recently been awarded a $13.5 million strategic investment from one of its customers to expand and enhance GHM’s Batavia production capabilities for complex components. The investment enables GHM’s timely delivery of components, including a recently placed order totaling $8.5 million.
GHM’s President and CEO, Daniel J. Thoren, commented, " We are recognized as a critical supplier to the U.S. Navy and believe the investments and advancements we have made over the past year are clearly acknowledged by our customer with this investment.”
GHM’s trailing-12-month levered FCF margin of 10.46% is 91.5% higher than the industry average of 5.46%. Its trailing-12-month asset turnover ratio of 0.86x is 5.8% higher than the industry average of 0.81x.
GHM’s revenue has grown at 24.8% and 14.4% CAGRs over the past three and five years, respectively. Moreover, its EBITDA has grown at 116.9% CAGR over the past three years.
For the fiscal first quarter that ended June 30, 2023, GHM’s net sales increased 31.9% year-over-year to $47.57 million, while its gross margin stood at 23.1%, compared to 18.7% in the year-ago quarter. The company’s adjusted EBITDA was $5.60 million, up 105% year-over-year.
Its adjusted net income grew 168.9% year-over-year to $3.57 million, while its adjusted earnings per share stood at $0.33, up 175% from the year-ago quarter. As of June 30, 2023, GHM’s total current assets stood at $117.35 million, compared to $110.70 million as of March 31, 2023.
For the fiscal year ending March 2024, GHM’s revenue and EPS are expected to increase 13.1% and 533.3% year-over-year to $177.76 million and $0.19, respectively. It has surpassed the consensus revenue and EPS in each of the trailing four quarters.
Over the past year, the stock has gained 74.8% to close the last trading session at $16.19. It has gained 20.3% over the past six months.
GHM’s POWR Ratings reflect solid prospects. It has an overall rating of B, translating to Buy in our proprietary rating system.
It has an A grade for Sentiment and a B for Value and Momentum. GHM is ranked #2 within the Energy – Services industry.
The additional ratings of GHM for Growth, Stability, and Quality can be viewed here.
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 Oil & Gas Markets; Adjacent Markets; and Emerging Markets segments.
On August 15, GEOS announced a rental contract with Walker Marine Geophysical, a high-resolution land and marine seismographic surveyor provider that will rent 3,000 new products, Mariner®, shallow water seabed wireless seismic data acquisition nodes.
The minimum value of the agreement is $3.2 million. The delivery of Mariners is expected to occur in GEOS’ third quarter of fiscal year 2024. This should bode well for GEOS.
GEOS’ trailing-12-month levered FCF margin of 11.37% is 85.6% higher than the industry average of 6.13%. Its trailing-12-month asset turnover ratio of 0.84x is 37.7% higher than the industry average of 0.61x.
GEOS’ revenue has grown at 8.3% and 9% CAGRs over the past three and five years, respectively. Moreover, its EBITDA has grown at 19.6% CAGR over the past three years.
GEOS’ total revenue increased 58.1% year-over-year to $32.72 million for the fiscal third quarter that ended June 30, 2023. This can be attributed to a rise in rental revenue by 79.7% from the prior-year quarter to $12.99 million. Its gross profit for the same quarter stood at $13.98 million, up 282.9% year-over-year.
The company’s net income and income per common share for the same quarter stood at $3.23 million and $0.24, compared to the net loss and loss per common share of $6.57 million and $0.51, respectively, for the year-ago quarter. For the nine months that ended June 30, 2023, GEOS’ cash and cash equivalents stood at $27.26 million, up 265.1% year-over-year.
GEOS’ President and CEO, Walter R. Wheeler, said, “Under current market conditions, we believe demand for our Oil and Gas segment products will remain strong into fiscal year 2024.”
The stock has gained 102.4% year-to-date to close its last trading session at $8.54. Also, the stock gained 55.6% over the past six months.
GEOS’ promising prospects are reflected in its POWR Ratings. It has an overall A rating, translating to Strong Buy in our proprietary rating system.
The stock has an A for Momentum and a B for Growth, Sentiment, and Quality. It is ranked first within the same industry.
Click here for additional POWR Ratings for Value and Stability for GEOS.
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GBNXF shares were trading at $14.78 per share on Monday morning, up $0.33 (+2.28%). Year-to-date, GBNXF has declined -12.87%, versus a 15.45% 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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