The energy industry shows promise due to the ever-rising global energy demands driven by population growth and energy-intensive applications. Moreover, geopolitical concerns in the Middle East and an expected recovery in global demand for oil and gas, particularly in China, bode well for the industry. These factors and expected interest rate cuts later this year offer investment opportunities in the energy sector.
Amid this backdrop, it could be wise to consider buying fundamentally strong energy stocks: Baker Hughes Company (BKR), Plains All American Pipeline, L.P. (PAA), Euronav NV (EURN), and MRC Global Inc. (MRC). These stocks are all Buy-rated in our proprietary POWR Ratings system.
Despite concerns over economic growth and high interest rates, optimism about the energy sector’s prospects is growing due to OPEC+'s extension of production cuts, the possibility of supply shocks in case of further escalation of tensions in the Middle East, an export cut by Mexican oil giant Pemex, and a slowly recovering Chinese economy, as evident from the uptick in manufacturing activity.
According to the World Bank, oil prices could average $102 per barrel in case a major conflict breaks out between one or more oil-producing nations. Moreover, several sources believe that OPEC and its allies could keep their production cuts intact if demand fails to pick up.
The EIA has increased its global oil consumption forecasts by 0.4 million bpd to 102.91 million bpd for 2024 and by 0.5 million bpd to 104.26 million bpd for 2025. Meanwhile, OPEC expects world oil demand to increase by 2.25 million bpd in 2024 and by 1.85 million bpd in 2025.
Furthermore, the expected growth in oil demand will likely benefit companies involved in drilling, evaluation, production, and maintenance services. The global oilfield services market is anticipated to grow at a CAGR of 6.5% to reach $175.03 billion by 2031. Investors’ interest in energy stocks is evident from the Vanguard Energy Index Fund ETF Shares’ (VDE) 10.9% returns over the past year.
Considering these conducive trends, let’s analyze the fundamental aspects of the four energy stocks.
Baker Hughes Company (BKR)
BKR provides a portfolio of technologies and services to energy and industrial value chains worldwide. The company operates through the Oilfield Services & Equipment (OFSE) and Industrial & Energy Technology (IET) segments.
On April 23, 2024, BKR announced receiving an order to supply 17 pipeline centrifugal compressors driven by aero-derivative gas turbines for Phase 3 of Saudi Arabia's Master Gas System, supporting the country's gas distribution goals and emission reduction targets.
On April 5, 2024, BKR announced receiving an order to supply electric-driven liquefaction technologies, including compressors and pumps, for the Cedar LNG project in Canada. The project aims to make it one of the world's lowest-carbon-intensity LNG facilities and support the Haisla Nation's economic and social development.
In terms of forward non-GAAP PEG, BKR’s 0.51x is 63.1% lower than the 1.39x industry average. Its 1.31x forward EV/Sales is 32.8% lower than the 1.94x industry average. Also, its 1.18x forward Price/Sales is 18.3% lower than the 1.44x industry average.
For the fiscal first quarter that ended March 31, 2024, BKR’s revenue increased 12.3% year-over-year to $6.42 billion. The company’s adjusted net income attributable to BKR and adjusted EPS grew 48.4% and 53.6% from the prior year’s period to $429 million and $0.43, respectively. Furthermore, its adjusted EBITDA rose 20.6% from the year-ago value to $943 million.
Analysts expect BKR’s EPS for the quarter ending June 30, 2024, to increase 26.1% year-over-year to $0.49. Its revenue for the same quarter is expected to grow 7.9% year-over-year to $6.81 billion. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past three months, the stock has gained 11.4% to close the last trading session at $31.89.
BKR’s POWR Ratings reflect strong prospects. It has an overall rating of B, translating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Growth, Momentum, and Sentiment. It is ranked #12 out of 82 stocks in the Energy - Oil & Gas industry. In total, we rate BKR on eight different levels. Beyond what we stated above, we also have given BKR grades for Value, Stability, and Quality. Get all of BKR’s ratings here.
Plains All American Pipeline, L.P. (PAA)
PAA and its subsidiaries engage in the pipeline transportation, terminalling, storage, and gathering of crude oil and natural gas liquids (NGL) in the United States and Canada. The company operates in two segments: Crude Oil and Natural Gas Liquids (NGL).
In terms of forward EV/Sales, PAA’s 0.47x is 75.6% lower than the 1.94x industry average. Its 0.23x forward Price/Sales is 84.3% lower than the 1.44x industry average. Likewise, its 1.45x forward Price/Book is 7.1% lower than the 1.56x industry average.
In the fourth quarter that ended December 31, 2023, PAA’s revenues stood at $12.70 billion. Its adjusted net income attributable to PAA and adjusted net income per common unit came in at $355 million and $0.43, up 24.1% and 27.3% year-over-year, respectively. In addition, its adjusted EBITDA attributable to PAA rose 11.8% over the prior-year quarter to $737 million.
For the quarter ended March 31, 2024, PAA’s revenue is expected to increase 5.2% year-over-year to $12.98 billion. Its EPS for the quarter ending June 30, 2024, is expected to increase 4.3% year-over-year to $0.26. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 31.3% to close the last trading session at $16.93.
PAA’s POWR Ratings reflect a favorable outlook. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Momentum and a B for Growth and Value. It is ranked #6 out of 24 stocks in the A-rated MLPs - Oil & Gas industry. To see PAA’s Stability, Sentiment, and Quality ratings, click here.
Euronav NV (EURN)
Headquartered in Antwerp, Belgium, EURN and its subsidiaries transport and store crude oil worldwide. The company offers floating, storage, and offloading (FSO) services and owns and operates a fleet of vessels.
On February 8, 2024, EURN announced successfully acquiring 100% of CMB.TECH NV shares from CMB NV, consolidating its position in the market.
In terms of forward EV/EBITDA, EURN’s 4.92x is 13.22% lower than the 5.67x industry average. Likewise, its 6.66x forward EV/EBIT is 30% lower than the 9.52x industry average. Also, its 1.31x forward Price/Book is 16.3% lower than the 1.56x industry average.
EURN’s revenue for the fourth quarter ended December 31, 2023, came in at $268.63 million, and its other operating income stood at $3.81 million. For the same quarter, its profit for the period attributable to owners of the company rose 73% from the year-ago value to $406.58 million. In addition, its profit per share after taxation increased 71.8% over the prior-year quarter to $2.01.
Analysts expect EURN’s EPS and revenue for fiscal 2025 to increase 1% and 6.9% year-over-year to $2.28 and $1.07 billion. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 2.5% to close the last trading session at $16.66.
EURN’s POWR Ratings reflect its bright prospects. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Momentum and Quality. It is ranked #19 in the Energy – Oil & Gas industry. To access the additional ratings of EURN for Growth, Value, Stability, and Sentiment, click here.
MRC Global Inc. (MRC)
MRC and its subsidiaries distribute pipes, valves, fittings, and other infrastructure products and services internationally. They offer ball, butterfly, gate, globe, check, diaphragm, needle, and plug valves among other products.
On April 2, 2024, MRC Global announced a partnership with Engine Capital to enhance strategic oversight and growth plans.
In terms of forward non-GAAP P/E, MRC’s 10.85x is 40.6% lower than the 18.27x industry average. Its 0.51x forward EV/Sales is 70.5% lower than the 1.74x industry average. In addition, its 9.66x forward EV/EBIT is 37.9% lower than the 15.54x industry average.
For the fiscal fourth quarter that ended December 31, 2023, MRC’s sales and adjusted gross profit stood at $768 million and $168 million, respectively. Its adjusted EBITDA stood at $48 million. For the same quarter, its adjusted net income attributable to common stockholders and adjusted net income attributable to common stockholders per share stood at $20 million and $0.23, respectively.
Street expects MRC’s EPS for the quarter ending September 30, 2024, to increase 6.3% year-over-year to $0.34. Its revenue for fiscal 2025 is expected to grow 8.8% year-over-year to $3.60 billion. Over the past year, the stock has gained 15.1% to close the last trading session at $11.13.
It’s no surprise that MRC has an overall rating of B, which translates to a Buy in our proprietary POWR Ratings system.
It is ranked #7 out of 50 stocks in the Energy - Services industry. It has an A grade for Value and Momentum and a B for Sentiment. Click here to see MRC’s Growth, Stability, and Quality ratings.
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BKR shares were trading at $32.10 per share on Thursday morning, up $0.21 (+0.66%). Year-to-date, BKR has declined -5.40%, versus a 6.12% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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