Energy prices climbed significantly in the first quarter of 2022, driven by solid demand and supply-side constraints exacerbated by Russia’s invasion of Ukraine. However, recently, oil and gas prices have retreated from their peaks.
Fears of an economic slowdown, led by steady interest rate hikes by the Federal Reserve and other major central banks in their attempt to tame inflation, have played a significant role in keeping energy prices in check. Crude Oil has dipped more than 13% over the past three months to end up below $75 a barrel.
However, energy prices are likely to rise with the implementation of the price cap on Russian crude, the potential onset of a harsher-than-usual winter in parts of the Northern hemisphere, and a possible reopening of the Chinese economy after the relaxation of covid restrictions in the wake of rare and significant protests.
Given this scenario, fundamentally sound energy stocks TotalEnergies SE (TTE), Unit Corporation (UNTC), and Adams Resources & Energy, Inc. (AE) could be ideal investments now.
TotalEnergies SE (TTE)
TTE operates globally as an integrated oil and gas company. It operates through four segments: Integrated Gas, Renewables & Power; Exploration & Production; Refining & Chemicals; and Marketing & Services.
On December 5, TTE announced that it had signed a Memorandum of Understanding (MoU) with Air France-KLM to deliver more than one million cubic meters/800,000 tonnes of Sustainable Aviation Fuel (SAF) over ten years from 2023. TTE will produce the fuel at its bio-refineries.
This agreement between TTE and Air France-KLM marks a significant step in their shared goal of supporting aviation sector decarbonization.
On December 1, TTE updated on the implementation of its energy transition strategy in Kazakhstan. On November 28, 2022, the company signed an agreement for the sale of its affiliate Total E&P Dunga GmbH to the Kazakh company Oriental Sunrise Corp Ltd. for an amount of $330 million.
On the other hand, TTE has also strengthened its presence in renewable energy in the country. In addition to its two solar power plants in operation (with a capacity of 128 MW), Total Eren has signed an agreement with its partners Samruk-Kazyna and KazMunayGas to develop the Mirny project, the largest wind energy project ever initiated in Kazakhstan.
On November 22, TTE announced its partnership with Air Liquide to innovate to produce and valorize renewable, low-carbon hydrogen at the Grandpuits zero crude platform. As per the agreement, TTE would be committed to purchasing the hydrogen produced for the needs of its platform, and Air Liquide will invest over €130 million ($134.61 million) in the construction and operation of a new unit producing hydrogen.
This collaboration is in line with the shared ambition of the two companies to get to net zero by 2050.
On November 15, TTE announced that it had completed the joint acquisition with ConocoPhillips (COP) of the 8.16% interest held by Hess (HES) in the Waha concessions in Libya. As a result of this transaction, TTE’s stake in these concessions was increased from 16.33% to 20.41%.
This is yet another milestone in the partnership between TTE and Libya’s National Oil Corporation (NOC) in its efforts to restore and increase the country’s oil production, together with reducing gas flaring to increase supply to power plants for additional electricity supply.
On the same day, TTE, in partnership with ENI, announced a Framework Agreement with the State of Israel to implement the maritime boundary agreement reached between Israel and Lebanon on October 27, 2022. This would allow TTE to explore an already identified prospect that might extend both in Block 9 and into Israel waters, thereby promising a potential increase in production.
For the third quarter ended September 30, 2022, TTE’s revenue increased 32.3% year-over-year to $64.92 billion, while its adjusted EBITDA increased 73.7% year-over-year to $19.42 billion. During the same period, the company’s adjusted net income increased 106.8% year-over-year to $9.86 billion, driven by higher oil and gas prices, refining margins, and the good performance of trading activities. TTE’s adjusted quarterly EPS increased 117.6% year-over-year to $3.83.
Analysts expect TTE’s EPS and revenue for the fiscal year 2022 (ending December 2022) to come in at $14.29 and $258.51 billion, indicating a growth of 114% and 40% year-over-year, respectively. Moreover, the company has an impressive earnings surprise history, as it has topped the consensus EPS estimates in each of the trailing four quarters.
TTE’s stock has gained 4.1% over the past month and 18.2% year-to-date to close the last trading session at $59.25.
TTE’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
TTE has an A grade for Momentum and a B for Quality. It is ranked #25 of 91 stocks Within the B-rated Energy – Oil & Gas industry.
To see additional POWR Ratings of TTE for Growth, Value, Stability, and Sentiment, click here.
Unit Corporation (UNTC)
UNTC explores, acquires, develops, and operates oil and natural gas properties in the United States. The company operates through its three broad segments: Oil and Natural Gas; Contract Drilling; and Mid-Stream.
On July 13, UNTC announced that its board of directors had authorized the repurchase of up to $25 million of its outstanding common stock through open market purchases, privately negotiated transactions, or other available means depending on market conditions, share price, availability, and other factors.
Philip B. Smith, UNTC’s Chairman and Chief Executive Officer commented, “The board’s approval of this stock repurchase program reflects the confidence we have in our company as well as our commitment to optimizing shareholder returns.”
For the fiscal second quarter ended June 30, UNTC’s total revenues increased marginally year-over-year to $134.55 million. Income from operations rose 79.8% from the prior-year quarter to $70.16 million. Net income attributable to UNTC came in at $80.09 million and $7.82 per share, compared to a net loss of $12.99 million and $1.09 per share in the prior-year quarter.
The stock has gained 68.3% year-to-date to close the last trading session at $55.30.
UNTC’s overall POWR Rating of A, translating to Strong Buy, reflects its promising outlook. It also has an A grade for Momentum, Value, and Quality.
UNTC is ranked #5 among 91 stocks in the Energy – Oil & Gas industry. Click here for additional ratings on Growth, Stability, and Sentiment for UNTC.
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 Gasses, Asphalt, and Dry Bulk; and Pipeline Transportation, Terminalling, and Storage of Crude Oil.
On November 10, AE declared a quarterly cash dividend of $0.24 per common share. The company pays $0.96 annually as dividends, which translates to a yield of 2.47% 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 of 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.
On September 1, AE announced that its subsidiary, Service Transport Company, has opened its 20th terminal in Pittsburgh, PA. This new facility will offer Service Transport’s clients additional resources in the Northeast area of the U.S., providing additional opportunities for revenue and profitability growth while serving as a base of operations for recruiting in the immediate area.
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 (ending 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 current year to come in at $3.37, representing an increase of 22.6% year-over-year.
AE’s stock has gained 4.9% over the past six months and 37.9% year-to-date to close the last trading session at $38.90.
AE’s POWR Ratings reflect a strong outlook. The stock has an overall rating of A which translates to a Strong Buy in our proprietary rating system. It has a grade of A for Momentum and Sentiment and a B for Quality and Value.
AE is ranked #4 in the same industry. Get additional ratings for AE’s Growth and Stability here.
TTE shares were trading at $59.76 per share on Thursday afternoon, up $0.51 (+0.86%). Year-to-date, TTE has gained 26.02%, versus a -15.78% 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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