Global energy demand is rising, boosting the prospects of the energy services industry. The demand for energy services will likely grow in the long term due to increasing investments in sustainable energy sources such as solar, wind, hydropower, and nuclear.
Considering these factors, it could be wise to buy fundamentally strong energy stocks REX American Resources Corporation (REX), Profire Energy, Inc. (PFIE), and NCS Multistage Holdings, Inc. (NCSM).
Before diving deeper into the fundamentals of these stocks, let’s discuss why the energy services sector is well-positioned to grow.
The Ukraine – Russia war had accelerated crude oil and natural gas prices. Crude oil prices had climbed above $100 per barrel last year due to worries over the lack of supply. After cooling down briefly, crude oil prices have risen lately, having crossed $90 a barrel for the first time since November 2022. Global oil demand rose by 3.26 million barrels per day during the second quarter of 2023 to reach 103 mb/d.
Although oil prices are now trading below $90, expectations of tighter oil supplies by the end of this year due to supply cuts by OPEC+ and Russia are likely to fuel the jump in oil prices. Moreover, the conflict between militant Hamas and Israel could boost oil prices in the longer term.
Although Israel is a minor player in oil production, its proximity to other Middle East nations that are significant producers is a cause of worry as the conflict could spread in the region, especially after Iran was accused of assisting Hamas. However, Iran has denied any involvement in the conflict.
Graves & Co.’s John Graves fears that oil prices could rise if Iran decides to stop the passage of tanker traffic through the Strait of Hormuz. He said, “If the conflict is prolonged and sanctions tightened, would Iran attempt to put a stranglehold on tanker traffic through the Strait of Hormuz?”
“All of this would tend to reduce the supply of crude oil longer-term, and as crude prices rise, it would tend to have an impact on gasoline prices in the U.S.,” he added. JP Morgan believes Brent oil prices, a benchmark for international crude oil prices, will likely touch $150 per barrel due to robust demand and diminishing supplies.
Global electricity demand is projected to grow between 62% and 185% by 2050 when compared to 2021 levels. The EIA forecasts that U.S. power generation from renewables will rise from 21% in 2021 to 44% in 2050. However, oil is expected to remain the largest energy source, just ahead of renewables.
With the dependence on oil unlikely to stutter anytime soon, energy companies offering services related to oil and gas production are likely to perform well. The global oilfield services market industry is projected to reach $421.31 billion by 2030, growing at a CAGR of 5.6%.
In light of these encouraging trends, let’s look at the fundamentals of the three promising Energy – Services stocks, beginning with number 3.
Stock #3: REX American Resources Corporation (REX)
REX produces and sells ethanol. The company also offers corn, distiller grains, non-food grade corn oil, gasoline, and natural gas. In addition, it provides dry distillers grains with solubles, which are used as a protein in animal feed.
In terms of forward EV/EBITDA, REX’s 5.29x is 8.9% lower than the 5.81x industry average. Its 0.83x forward Price/Sales is 45.6% lower than the 1.53x industry average. Likewise, its 8.66x forward EV/EBIT is 7% lower than the 9.31x industry average.
REX’s net sales and revenue for the second quarter ended July 31, 2023, came in at $211.98 million. Its gross profit increased 30.1% year-over-year to $18.35 million. The company’s net income attributable to REX common shareholders stood at $9.06 million. Also, its EPS came in at $0.52.
Analysts expect REX’s EPS for the quarter ending October 31, 2023, to increase 338.9% year-over-year to $0.79. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 36.8% to close the last trading session at $38.91.
REX’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates 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.
It is ranked #8 out of 48 stocks in the Energy – Services industry. It has a B grade for Stability and Quality. To see the other ratings of REX for Growth, Value, Momentum, and Sentiment, click here.
Stock #2: Profire Energy, Inc. (PFIE)
PFIE is a technology company that provides burner and combustion management systems and solutions for natural and forced draft applications in the United States and Canada. It primarily focuses on the upstream, midstream, and downstream transmission segments of the oil and gas industry.
In terms of forward EV/Sales, PFIE’s 1.75x is 19.5% lower than the 2.17x industry average. Its 8.99x forward EV/EBIT is 3.4% lower than the 9.31x industry average.
For the fiscal second quarter ended June 30, 2023, PFIE’s total revenues increased 49.9% year-over-year to $14.44 million. Its gross profit rose 68.4% over the prior-year quarter to $7.41 million. The company’s income from operations increased significantly year-over-year to $3.22 million. Its net income rose 903.1% year-over-year to $2.86 million. Also, its EPS came in at $0.06, representing an increase of 500% year-over-year.
Street expects PFIE’s EPS and revenue for the quarter ended September 30, 2023, to increase 100% and 12.2% year-over-year to $0.04 and $14.39 million, respectively. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 151.6% to close the last trading session at $2.34.
PFIE’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, translating to Buy in our proprietary rating system.
It is ranked #7 in the same industry. It has a B grade for Momentum, Sentiment, and Quality. Click here to see the other ratings of PFIE for Growth, Value, and Stability.
Stock #1: NCS Multistage Holdings, Inc. (NCSM)
NCSM provides engineered products and support services for oil and natural gas well completions and field development strategies internationally. It offers fracturing systems, enhanced recovery products, repeat precision products, chemical and radioactive tracer diagnostics services, and well construction products.
In terms of forward EV/Sales, NCSM’s 0.35x is 84% lower than the 2.17x industry average. Its 2.98x forward EV/EBITDA is 48.7% lower than the 5.81x industry average. Likewise, its 0.23x forward Price/Sales is 85% lower than the 1.53x industry average.
For the fiscal second quarter that ended June 30, 2023, NCSM’s total revenues stood at $25.39 million. Its total Canada sales increased 11.5% year-over-year to $14.32 million. The company’s net working capital increased 0.9% over the prior-year quarter to $55.72 million.
For the quarter ended September 30, 2023, NCSM’s revenue is expected to increase 4.6% year-over-year to $51.10 million. Its EPS for fiscal 2024 is expected to increase 122.9% year-over-year to $3.13. Over the past month, the stock has declined 8.6% to close the last trading session at $15.58.
NCSM’s POWR Ratings reflect its robust prospects. It has an overall rating of B, translating to Buy in our proprietary rating system.
It has an A grade for Momentum and a B for Value, Sentiment, and Quality. It is ranked #5 within the Energy - Services industry. To see the other ratings of NCSM for Growth and Stability, click here.
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REX shares were trading at $38.56 per share on Wednesday afternoon, down $0.35 (-0.90%). Year-to-date, REX has gained 21.03%, versus a 14.67% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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