The stock market is waiting in anticipation of the upcoming inflation report this week. Economists expect May’s CPI measure to be on par with the 8.3% near 40-year-high inflation in April and expect a month-over-month increase of 0.7%. Also, last month’s job report reflected robust job growth, which indicates the economy is in fairly good shape, which will likely boost the Fed’s commitment to more interest rate increases.
Historically, amid such an inflationary environment, the energy sector tends to perform well. The sector, including oil and gas companies, outperformed inflation 71% of the time and has delivered a 9% annual real return because energy prices are a key constituent of inflation, and hence sector revenues are boosted.
With the European Union reducing its imports of Russian oil due to its war with Ukraine, oil prices are expected to rise. Hence, the stocks of fundamentally energy companies Energy Transfer LP (ET), TotalEnergies SE (TTE), Suncor Energy Inc. (SU), Shell plc (SHEL), and Valero Energy Corporation (VLO) might be solid bets this summer.
Energy Transfer LP (ET)
ET in Dallas, Tex., provides energy-related services with the help of a diversified asset portfolio. The company is primarily engaged in transporting and selling natural gas and natural gas liquids (NGLs) for industrial-end users and other users.
On June 6, ET announced that China Gas Hongda Energy Trading Co., LTD, a subsidiary of China Gas Holdings Limited, has entered an LNG Sales and Purchase Agreement (SPA) with Energy Transfer LNG Export, LLC, an ET subsidiary that is related to its Lake Charles LNG project to supply 0.7 million tons of LNG per annum. Last month, ET entered a SPA with SK Gas Trading LLC to supply 0.4 million tons per annum of LNG from its Lake Charles LNG export facility. These agreements should benefit the company.
For the fiscal first quarter, ended March 31, ET’s revenues increased 20.6% year-over-year to $20.49 billion. Its net income and net income per common unit came in at $1.49 billion and $0.37, respectively, and its operating income stood at $1.85 billion.
Analysts expect ET’s EPS to improve 75% year-over-year to $0.35 for its fiscal quarter ending June 30, 2022.
ET’s shares have gained 9.9% in price over the past year and 44% year-to-date to close Friday’s trading session at $11.85.
ET’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
ET has a Momentum grade of A and a Value and Sentiment grade of B. In the 100-stock Energy – Oil & Gas industry, it is ranked #31. The industry is rated B.
Click here to see the additional POWR Ratings for ET (Growth, Stability, and Quality).
TotalEnergies SE (TTE)
TTE is an integrated oil and gas company that operates through the five segments of Exploration & Production; Integrated Gas; Renewables & Power; Refining & Chemicals; and Marketing & Services. The company is headquartered in Courbevoie, France.
On May 25, TTE announced that it had signed agreements with Global Infrastructure Partners (GIP) to acquire 50% of Clearway Energy Group (CEG). The company expects to strengthen its position in the renewable energy and storage market through this acquisition.
On May 24, TTE reported that it had signed an SPA with Korean company Hanwha Energy Corporation to supply 600,000 metric tons of LNG per year over 15 years beginning in 2024. Stéphane Michel, President of Gas, Renewables & Power at TTE, said, “With this new contract, TotalEnergies increases its natural gas shipments to South Korea, the world’s third-largest importer of LNG, in 2021.”
TTE’s revenues from sales increased 65.5% year-over-year to $63.95 billion in its fiscal first quarter of 2022. Its adjusted net income and adjusted EPS came in at $8.98 billion and $3.40, up 198.9% and 209.1% from the prior-year quarter.
The $3.24 consensus EPS estimate for the fiscal quarter ending June 30, 2022, indicates a 155.1% year-over-year increase. Likewise, the $54.85 billion consensus revenue estimate for the same quarter reflects a 16.6% rise from the prior-year period. Furthermore, TTE has an impressive surprise earnings history; it has topped consensus EPS estimates in three of the trailing four quarters.
Over the past year, the stock has gained 21% in price to close Friday’s trading session at $58.77. It has gained 18.8% year-to-date.
It is no surprise that TTE has an overall A grade, which translates to Strong Buy in our POWR Rating system.
TTE has an A grade for Momentum and a B grade for Growth. It is ranked #5 in the Energy – Oil & Gas industry.
To see the additional POWR Ratings for Value, Stability, Sentiment, and Quality for TTE, click here.
Suncor Energy Inc. (SU)
SU, headquartered in Calgary, Canada, is an integrated energy company that is focused primarily on developing petroleum resource basins in Canada’s Athabasca oil sands. The company engages in the exploration, acquisition, production, and transport of crude oil in Canadian and international markets.
On May 31, SU announced that, together with the joint venture partners, its plans to restart the West White Rose project. The company intends to increase its ownership of the White Rose asset. This should bolster its operational capability.
On April 4, SU announced that it would focus on hydrogen and renewable fuels to progress toward its objective to be a net-zero company by 2050. The company expects to drive shareholder returns over a long period and meet its emission targets through this venture.
For its first fiscal quarter, ended March 31, SU’s revenues and other income increased 56.3% year-over-year to CAD13.50 billion ($10.72 billion). Its net earnings rose 259.2% from the prior-year quarter to CAD2.95 billion ($2.34 billion). And its net earnings per common share improved 281.5% from the same period the prior year to CAD2.06.
The Street $1.77 EPS estimate for the quarter ending June 30, 2022, indicates a 365.8% year-over-year increase. And the Street’s $10.98 billion revenue estimate for the same quarter reflects a52.8% improvement from the prior-year period.
The stock has gained 60.3% over the past year and 63.3% year-to-date to close Friday’s trading session at $40.87.
This promising prospect is reflected in SU’s POWR Ratings. The stock has an overall B rating, which equates to Buy in our POWR Rating system.
SU has a Momentum and Quality grade of A and a Growth grade of B. It is ranked #27 in the Energy – Oil & Gas industry.
Click here to see the additional POWR Ratings for SU (Value, Stability, and Sentiment).
Shell plc (SHEL)
SHEL, headquartered in London, operates as an energy and petrochemical company in several parts of the world. The company operates through the segments of Integrated Gas; Upstream; Marketing; Chemicals and Products; and Renewables and Energy Solutions.
On June 1, Shell Retail and Convenience Operations LLC, a subsidiary of SHEL’s Shell Oil Products US, announced that it had completed the acquisition of certain company-owned fuel and convenience retail sites from the Landmark group of companies, including supply agreements. The company intends to increase its retail footprint through this acquisition.
On May 30, Shell Australia Pty Ltd and its joint venture partner SGH Energy announced that they would develop the Crux natural gas field off the coast of Western Australia. This should bolster the company’s integrated gas portfolio.
For its fiscal first quarter of 2022, SHEL’s revenue increased 51.3% year-over-year to $84.20 billion. Its adjusted earnings rose 182.3% from the prior-year quarter to $9.13 billion. Its adjusted EPS improved 185.7% from the same period in the prior year to $1.20.
The $2.37 consensus EPS estimate for the quarter ending June 30, 2022, indicates a 66.9% year-over-year increase. The $95.95 billion consensus revenue estimate for the same quarter reflects an 87.5% improvement from the prior-year period. In addition, SHEL has topped consensus EPS estimates in three of the trailing four quarters.
Over the past year, SHEL has gained 48.6% in price and 37.5% year-to-date to close Friday’s trading session at $59.66.
SHEL has an overall A rating, which translates to Strong Buy in our POWR Rating system.
SHEL has a Momentum grade of A and a Growth, Sentiment, and Quality grade of B. It is ranked #4 in the Energy – Oil & Gas industry.
To see the additional POWR Ratings for Value and Stability for SHEL, click here.
Valero Energy Corporation (VLO)
VLO operates internationally as a manufacturer and seller of transportation fuels and petrochemical products. Operating through the three broad segments of Refining; Renewable Diesel; and Ethanol, the company is involved in oil and gas refining, marketing, and bulk selling activities.
On April 28, VLO declared a quarterly dividend of $0.98 per share, payable to shareholders on June 7. This decision reflects the company’s ability to pay back its shareholders.
For its fiscal first quarter ended March 31, VLO’s revenues increased 85.2% year-over-year to $38.54 billion. Its adjusted net income, attributable to VLO stockholders and adjusted earnings per common share, were $944 million and $2.31, both registering a considerable increase over their negative year-ago values.
Analysts expect VLO’s EPS to increase 983.3% year-over-year to $5.20 for its fiscal quarter ending June 30, 2022. The Street expects its revenue to come in at $40.58 billion for the same quarter, indicating a 46.3% improvement from the prior-year period. In addition, VLO has beaten consensus EPS estimates in each of the trailing four quarters.
VLO’s shares have gained 62.7% in price over the past year and 80.3% year-to-date to close Friday’s trading session at $135.42.
VLO has an overall rating of B, which equates to Buy in our proprietary rating system.
VLO has a Momentum grade of A and a Growth and Quality grade of B. It is ranked #13 in the Energy – Oil & Gas industry.
In addition to the POWR Rating grades we have stated above, one can see VLO ratings for Value, Stability, and Sentiment here.
ET shares were trading at $11.88 per share on Monday afternoon, up $0.03 (+0.25%). Year-to-date, ET has gained 49.37%, versus a -12.65% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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