Heightened supply cuts by OPEC+ and a growing global demand for oil are poised to drive an increase in oil prices. Furthermore, oil prices surged this month, spurred by rising fears that tensions in the Middle East could disrupt oil supply coupled with expectations of rate cuts that could stimulate economic growth and boost fuel demand.
Given the backdrop, in this piece, I highlighted the fundamentals of three energy stocks: MPLX LP (MPLX), ChampionX Corporation (CHX), and Pembina Pipeline Corporation (PBA). After assessing these stocks, I believe MPLX and CHX could be solid investment candidates. However, investors could keep an eye on PBA for a better entry point.
Despite the recent drop in oil prices, OPEC remains cautiously optimistic about the oil market. It attributes the price decline to "exaggerated concerns" about demand while maintaining its relatively high prediction for oil use in 2024. For 2024, OPEC anticipates demand growth of 2.25 million barrels per day.
Meanwhile, the International Energy Agency (IEA) has increased its projection for oil demand growth in 2023 to 2.4 million barrels per day. Also, it has revised its growth forecast for 2024 to 930,000 bpd, an increase from the earlier projection of 880,000 bpd.
On the other hand, OPEC has been implementing supply reductions since late 2022 to stabilize the oil market and elevate oil prices. In the first quarter of 2024, multiple OPEC+ nations have collectively pledged to voluntary oil production cuts totaling 2.2 million barrels per day.
Given the uncertainties arising from supply constraints in the coming months, the Energy Information Administration (EIA) foresees a rise in the Brent crude oil spot price. The projection suggests an increase from an average of $78 per barrel in December to an average of $84 per barrel in the first half of 2024.
The increasing global demand for energy is set to drive growth in the oilfield services market. Additionally, significant advancements in drilling technology are a key transformation in the oilfield services sector. The projected expansion of the global oilfield services market is anticipated to reach $346.45 billion by 2027, with a CAGR of 6.6%.
Thus, keeping all these factors in mind, let’s delve deeper into the fundamentals of the featured energy stocks in detail:
Stocks to Buy:
MPLX LP (MPLX)
MPLX owns and operates midstream energy infrastructure and logistics assets primarily in the United States. It operates in two segments, Logistics and Storage; and Gathering and Processing.
On November 13, MPLX paid its shareholders a quarterly distribution of $0.85 per common unit for the third quarter of 2023. This represents a 10% increase from the second quarter 2023 distribution.
The company’s annual dividend of $3.40 translates to a 9.32% yield on the prevailing prices, while its four-year average dividend yield is 11.25%. Its dividend payouts have grown at a CAGR of 4.9% over the past three years. Also, MPLX has a record of 10 years of consecutive dividend growth.
MPLX’s trailing-12-month EBIT margin of 38.53% is 77.3% higher than the industry average of 21.73%. Likewise, its trailing-12-month EBITDA margin of 50.18% is 44.4% higher than the industry average of 34.76%. Furthermore, the stock’s trailing-12-month net income margin of 34.72% is 149.3% higher than the industry average of 13.93%.
For the fiscal third quarter, which ended on September 30, 2023, MPLX’s total revenues and other income amounted to $2.91 billion. The company’s income from operations and net income came in at $1.15 billion and $928 million, respectively. Additionally, its cash and cash equivalents stood at $960 million, up 303.4% compared to $238 million as of December 31, 2022.
The consensus EPS estimate of $0.94 for the fiscal fourth quarter (ending December 2023) represents a 20.1% year-over-year improvement. While the consensus revenue estimate of $2.83 billion for the same period reflects a 6.2% year-over-year rise. Additionally, the company topped its EPS and revenue estimates in three of the trailing four quarters, which is excellent.
The stock has gained 12.3% over the past year to close the last trading session at $36.50
MPLX’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, translating to 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 Momentum, Stability, and Quality. In the 26-stock A-rated MLPs - Oil & Gas industry, it is ranked #6. Click here to see MPLX’s ratings for Growth, Value, and Sentiment.
ChampionX Corporation (CHX)
CHX provides chemistry solutions, and engineered equipment and technologies to oil and gas companies worldwide. The company operates through four segments: Production Chemical Technologies; Production & Automation Technologies; Drilling Technologies; and Reservoir Chemical Technologies.
On November 10, CHX declared a quarterly dividend of $0.09 per share, payable to its shareholders on January 5, 2024. The company’s annual dividend translates to a 1.12% yield on the prevailing prices, while its four-year average dividend yield is 0.37%.
CHX’s trailing-12-month levered FCF margin of 13.05% is 122.6% higher than the industry average of 5.86%. Likewise, its trailing-12-month asset turnover ratio of 1.13x is 105.9% higher than the industry average of 0.55x. Furthermore, the stock’s trailing-12-month cash per share of $1.46 is 57.7% higher than the industry average of $0.93.
CHX’s revenue for the fiscal third quarter (ended September 30, 2023) amounted to $939.78 million, while its gross profit rose 48.5% year-over-year to $291.85 million. The company’s attributable net income and EPS came in at $77.71 million and $0.39, up 236.9% and 254.5% from the year-ago value, respectively.
Moreover, during the same period, the company’s cash and cash equivalents stood at $285.01 million, increasing 13.9% compared to $250.19 million as of December 31, 2022. Also, its adjusted EBITDA grew 14.1% from the prior-year quarter to $189.54 million.
Street expects CHX’s fourth quarter (ending December 2023) to increase 4% year-over-year to $0.45, while its revenue for the same period is projected to come in at $954.98 million. Moreover, the company surpassed its EPS estimates in three of the trailing four quarters, which is promising.
CHX’s shares have surged 17.9% over the past nine months to close the last trading session at $30.31.
CHX’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.
It has a B grade for Momentum and Quality. Within the 49-stock Energy - Services industry, it is ranked #6. Click here to see the other ratings of CHX for Growth, Value, Stability, and Sentiment.
Stock to Watch:
Pembina Pipeline Corporation (PBA)
Headquartered in Calgary, Canada, PBA provides energy transportation and midstream services. It operates through three segments: Pipelines; Facilities; and Marketing & New Ventures.
PBA’s trailing-12-month levered FCF margin of 11.75% is 100.4% higher than the 5.86% industry average. However, its trailing-12-month gross profit and EBITDA margins of 26.34% and 26.15% are 44.3% and 24.8% lower than the industry averages of 47.32% and 34.76%, respectively.
In the fiscal third quarter, which ended on September 30, 2023, PBA’s net revenue increased 4.2% year-over-year to CA$1.07 billion ($810.88 million). However, its gross profit declined 24.6% from the year-ago value to CA$659 million ($499.16 million).
Moreover, the company’s earnings amounted to CA$346 million ($262.08 million) and CA$0.58 per share, down 81% and 82% from the prior-year quarter, respectively. Meanwhile, its adjusted EBITDA improved 5.6% year-over-year to CA$1.02 billion ($772.61 million).
Analysts predict PBA’s revenue for the fiscal period ending December 2023 to decline 22.6% year-over-year to $6.63 billion. Whereas its revenue for the fiscal period ending December 2024 is projected to increase 6.8% year-over-year to $7.08 billion.
The stock has surged 15.3% over the past three months to close the last trading session at $34.62.
PBA’s POWR Ratings are consistent with this uncertain outlook. It has an overall rating of C, translating to Neutral in our proprietary rating system.
It is ranked #20 out of 43 stocks in the Foreign Oil & Gas industry. It has a C grade for Value, Sentiment, and Quality. Click here to see PBA’s ratings for Growth, Momentum, and Stability.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
MPLX shares were trading at $36.51 per share on Thursday morning, up $0.01 (+0.03%). Year-to-date, MPLX has gained 21.76%, versus a 26.62% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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