Strong global oil demand, combined with the impact of OPEC+ production cuts, is bolstering growth in the energy industry. Consequently, let's examine robust energy stocks Shell plc (SHEL), Valero Energy Corporation (VLO), Energy Transfer LP (ET), and Cheniere Energy, Inc. (LNG), which have retained Wall Street's attention.
Before delving into the highlighted stocks, let's first explore the ongoing dynamics within the energy space.
Global oil demand is ascending to unprecedented heights, fueled by robust summer air travel, heightened oil consumption in power generation, and a surge in Chinese petrochemical operations. June marked a historic pinnacle at 103 million barrels per day (mb/d), and August holds the potential for yet another peak.
Demand growth is outpacing refiners' capacity while scarce gasoline and diesel supplies are propelling profit margins to their highest in six months. The International Energy Agency (IEA) predicts a yearly rise, projecting a record-breaking 2.2 mb/d increase to reach an all-time high of 102.2 mb/d.
Production cuts driven by OPEC+ are further influencing supply and demand dynamics. The oil market is exhibiting bullish momentum, poised to breach the $90 per barrel threshold. Bob McNally, President of Rapidan Energy, asserts that oil hitting $100 per barrel is “entirely possible."
Concurrently, the U.S. Energy Information Administration (EIA) foresees a 1.4 md/d increase in 2023's global liquid fuels production. Associated natural gas output is poised to average around 104 billion cubic feet per day until late 2024, contrasting with the second quarter's 103 billion cubic feet per day.
Considering the growing demand for oil and gas, let's explore the fundamentally robust energy stocks SHEL, VLO, ET, and LNG to understand what makes them worth Wall Street's attention.
Shell plc (SHEL)
Based in London, United Kingdom, SHEL operates as a global energy and petrochemical firm. It explores, extracts, refines, and markets oil and gas alongside manufacturing and marketing chemicals.
On April 18, Shell U.K. Ltd, a subsidiary of SHEL, successfully reinitiated operations at the Pierce field in the UK Central North Sea, following a substantial enhancement enabling gas production after years of exclusive oil extraction.
Anticipated peak production stands at 30,000 barrels of oil equivalent per day, over double the pre-revamp yield, primarily favoring increased gas extraction over oil, thereby promising considerable gains for SHEL.
On February 20, Shell Petroleum NV, a SHEL subsidiary, completed the acquisition of 100% of the shares of Nature Energy Biogas A/S (Nature Energy). This move aligns with SHEL's objective of establishing a comprehensive global Renewable Natural Gas (RNG) value chain and expanding its lucrative low-carbon solutions across diverse industries.
Nature Energy, a cash-generative business, is projected to enhance SHEL's earnings immediately upon completion and deliver substantial double-digit returns. SHEL stands to amplify its value through unparalleled customer access and global reach in trading and supply chain operations.
For the second quarter that ended June 30, 2023, SHEL’s Marketing segment’s adjusted EBITDA increased 10.5% year-over-year to $1.60 billion. The segment’s cash flow from operating activities came in at $1.41 billion, compared to an outflow of 454 million in the prior year’s period.
Also, the company’s Renewables and Energy Solution segment’s cash inflow from operating activities stood at $3.19 billion, compared to an outflow of $558 million in the previous year’s quarter. As of June 30, 2023, the company’s cash and cash equivalents stood at $45.09 billion, compared to $40.25 billion as of December 31, 2022.
For the fiscal year ending December 2024, SHEL’s revenue is expected to increase 3.3% year-over-year to $352.16 billion. The company’s EPS for the same period is expected to come in at $8.49, up 2.5% from the prior year. Moreover, the company surpassed the consensus revenue and EPS estimates in three of four trailing quarters.
Shares of SHEL have gained 16.2% over the past year to close the last trading session at $61.42.
Six out of seven Wall Street analysts rating SHEL have rated it as Buy. Its 12-month median price target of $68.26 indicates an 11.1% potential upside. The price targets range from a low of $34.85 to a high of $83.
SHEL’s solid fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
SHEL has an A grade for Momentum and a B for Stability and Quality. It is ranked #9 in the 89-stock Energy - Oil & Gas industry.
In addition to the POWR Ratings I’ve just highlighted, you can see SHEL’s ratings for Growth, Value, and Sentiment here.
Valero Energy Corporation (VLO)
VLO is a multinational manufacturer and marketer of petroleum-derived and low-carbon liquid fuels and petrochemical goods. The company's segments include Refining; Renewable Diesel; and Ethanol. It owns 15 petroleum refineries across the United States, Canada, and the United Kingdom.
In its fiscal second quarter update, VLO announced that the Port Arthur Coker project, which began operating in April, is functioning seamlessly at maximum capacity. The new coker has bolstered the refinery's processing capability, accommodating higher quantities of heavy crudes and residual feedstocks, thereby optimizing turnaround efficiency.
Furthermore, the Sustainable Aviation Fuel (SAF) initiative at the DGD Port Arthur facility is on track for completion by 2025. With the potential to upgrade half of its 470-million-gallon annual renewable diesel capacity to SAF production, VLO stands to solidify its position as a major global SAF manufacturer, boosting profitability.
For the second quarter, which ended June 30, 2023, VLO’s renewable diesel segment’s revenue increased 54.8% year-over-year to $2.25 billion. The segment’s operating income rose 189.5% from the year-ago value to $440 million. Also, VLO’s Ethanol segment’s adjusted operating income grew 62% from the prior year’s period to $128 million.
Shares of VLO have surged 8.3% over the past month, closing the last trading session at $131.16.
Eight out of 11 Wall Street analysts rating VLO have rated it as Buy. Its 12-month median price target of $149.09 indicates a 13.7% potential upside. The price targets range from a low of $113.00 to a high of $171.00.
VLO’s robust outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
VLO has a B grade for Value, Momentum, and Quality. It is ranked #4 out of 89 stocks within the Energy - Oil & Gas industry.
Click here to access additional VLO ratings (Growth, Stability, and Sentiment).
Energy Transfer LP (ET)
ET is involved in natural gas operations, midstream activities, and intrastate transportation and storage of natural gas. Its segments include intrastate transportation and storage; interstate transportation and storage; midstream; NGL and refined products transportation and services; crude oil transportation and services; investment in Sunoco LP; investment in USAC; and all other.
On August 16, ET and Crestwood Equity Partners LP (CEQP) announced a definitive merger agreement wherein ET would acquire CEQP through an all-equity transaction valued at approximately $7.1 billion. This move expands ET's influence into the Williston and Delaware basins while facilitating entry into the Powder River basin.
In addition, the alliance signifies an enriched value chain presence. The heightened scale and bolstered balance sheet are poised to yield improved financing costs for the acquired debt securities, enhancing the overall financial resilience of ET.
On March 27, ET and Lotus Midstream LLC revealed a significant accord, outlining ET's intent to acquire Lotus Midstream Operations for approximately $1.45 billion from an EnCap Flatrock Midstream (EFM) affiliate.
ET's strategic move involves obtaining Centurion Pipeline assets, expanding its presence in the Permian Basin, and boosting connectivity for crude oil transportation and storage businesses. Post-acquisition, ET plans to construct a 30-mile pipeline project enhancing terminal-to-delivery services from Midland to Cushing.
For the fiscal second quarter that ended June 30, 2023, ET’s adjusted EBITDA from NGL and refined products transportation and services segment increased 9.7% year-over-year to $837 million. Similarly, adjusted EBITDA from the crude oil transportation and services segment grew 19.9% from the year-ago value to $674 million.
In addition, as of June 30, 2023, the company’s current assets stood at $10.60 billion, while total assets amounted to $105.13 billion.
All six Wall Street analysts rating ET have rated it as Buy. Its 12-month median price target of $17.83 indicates a 37.2% potential upside. The price targets range from a low of $16 to a high of $22.
Analysts expect ET’s EPS to increase 9.4% year-over-year to $0.32 for the fiscal third quarter ending September 2023. The company’s EPS for the next quarter ending December 2023 is expected to come in at $0.35, up 3% from the prior year’s period. The stock has gained 11.9% year-to-date, closing the last trading session at $13.00.
ET’s positive outlook is apparent in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
ET has a B grade for Stability, Value, and Momentum. It is ranked #13 out of 89 stocks within the same industry.
Click here to access additional ET ratings for Growth, Quality, and Sentiment.
Cheniere Energy, Inc. (LNG)
LNG supplies clean, secure LNG to energy companies, utilities, and traders worldwide. It operates two liquefaction plants, Sabine Pass and Corpus Christi terminals, and a 21.5-mile pipeline connecting Corpus Christi LNG terminal with interstate and intrastate gas pipelines.
On June 26, LNG revealed its subsidiary, Cheniere Marketing, LLC, had secured a substantial long-term Liquefied Natural Gas (LNG) deal with ENN LNG (Singapore) Pte. Ltd., an ENN Natural Gas Co., Ltd. Subsidiary. Under the agreement, ENN agreed to purchase 1.8 million tonnes per annum of LNG from Cheniere Marketing.
This strategic step bolsters LNG's SPL Expansion Project momentum, underscoring the growing demand for enhanced LNG capacity and LNG's prowess in crafting tailored solutions for a global clientele. The partnership accentuates LNG's competitive edge in fulfilling evolving market demands.
On June 21, LNG announced that its subsidiary, Cheniere Marketing, LLC, entered a long-term liquefied natural gas Sale and Purchase Agreement (SPA) with Equinor ASA. Within this agreement, Equinor commits to procuring about 1.75 million tonnes per annum of LNG from Cheniere Marketing.
The SPA is poised to lend robust commercial support to the SPL Expansion Project, reinforcing LNG's dedication to meeting global demand for secure, sustainable energy resources.
LNG’s other revenues increased 127.3% year-over-year to $150 million in the second quarter that ended June 30, 2023. The company’s income from operations rose 56.3% from the year-ago value to $1.79 billion.
In addition, the company’s net income grew 87% year-over-year to $1.71 billion, while net income per share attributable to common stockholders increased 93.4% from the previous year’s quarter to $5.61.
The consensus EPS estimate of $2.72 for the fiscal year ending December 2023 reflects a 379.3% year-over-year improvement. Moreover, the company’s EPS is expected to grow 30.2% per annum over the next five years. LNG has surged 14.1% over the past six months, closing the last trading session at $164.13.
All nine Wall Street analysts rating LNG have rated it as Buy. Its 12-month median price target of $202.56 indicates a 23.4% potential upside. The price targets range from a low of $187 to a high of $226.
LNG’s strong outlook is reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
LNG has a B grade for Value, Momentum, Sentiment, and Quality. It has topped the Energy - Oil & Gas industry.
Click here to access additional LNG ratings (Growth and Stability).
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SHEL shares were trading at $61.45 per share on Tuesday morning, up $0.03 (+0.05%). Year-to-date, SHEL has gained 11.12%, versus a 15.85% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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