The stock market has been on a roller coaster of late. The benchmark S&P 500 has tumbled more than 19% this year. The chief strategist of UBS Investment Bank expects stocks to slump more, inflation to slow, and the U.S. economy to suffer a recession. He warned that American companies could see a blow to their profits as the country slumps into a recession.
Independent upstream energy company Berry Corporation (BRY) develops and produces conventional oil reserves in the western United States. Despite the plunge in the stock market, BRY has demonstrated solid momentum and has gained 11.8% over the past three months to close the last trading session at $8.05. It has gained 7.9% over the past six months.
Moreover, in the fiscal third quarter ended September 30, 2022, its revenue exceeded analysts’ estimates by 76%, and its earnings per share also surpassed analyst estimates significantly.
BRY continues to deliver top-tier shareholder returns. For the third quarter, it declared a combined dividend of $0.47 per share, and in the same quarter, it successfully repurchased two million more shares for $19 million. On top of it, the company has declared a total of $1.34 per share in 2022 and has repurchased a total of four million shares or 5% of its total outstanding shares as of September 30, 2022.
Its annual dividend of 0.24 yields 2.98% on the prevailing market price. BRY has a 4-year average dividend yield of 5.92.
Trem Smith, Berry Board Chair and CEO, said, “At the current oil strip pricing and with a strategy of holding our production flat, we are on track to return to our shareholders the equivalent of our current market capitalization of approximately $700 million in just three-plus years.”
Here is what could shape BRY’s performance in the near term:
Solid Financials
BRY’s total revenues and other rose 162.5% year-over-year to $376.45 million for the third quarter that ended September 30, 202. Its adjusted net income grew 294.5% year-over-year to $45.52 million. Also, its adjusted EPS came in at $0.55, up 292.9% year-over-year.
Moreover, its total expenses and other declined 16.9% from its prior-year quarter to $166.01 million, while its adjusted EBITDA rose 63.5% year-over-year to $96.98 million in the third quarter.
Attractive Valuations
BRY’s forward EV/EBITDA of 2.54x is 51.3% lower than the industry average of 5.23x. Its forward non-GAAP P/E of 4.15x is 47.3% lower than the industry average of 7.88x. Moreover, its forward Price/Cash flow of 1.98x is 52.1% lower than the industry average of 4.14x.
Favorable Analyst Expectations
BRY’s revenue is expected to increase 37.6% year-over-year to $749.75 million in the fiscal year ended December 2022 and 86.3% year-over-year to $175.25 million for the fiscal first quarter ending March 2023.
Its EPS is expected to increase 675.2% year-over-year to $1.94 in the current fiscal year and 135.4% year-over-year to $0.28 in the fiscal fourth quarter ending December 2022.
In addition, the stock has surpassed its EPS and revenue consensus estimates in three of the trailing four quarters, which is impressive.
POWR Ratings Reflect Promising Outlook
BRY has an overall rating of A, which equates to a Strong Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. BRY has an A grade for Momentum, owing to its steady gains over the past months.
It has an A grade for Value, in sync with its lower-than-industry valuation multiples. The company’s solid financial result in the latest quarter justifies its B grade in Growth.
In the B-rated Energy – Oil & Gas industry, BRY is ranked #3 among 93 stocks.
Click here for the additional POWR Ratings for BRY (Stability, Sentiment, Quality).
Bottom Line
BRY’s stable dividend and share repurchases reflect its shareholder return ability. The company also delivered strong results in the recent quarter. Moreover, the stock has been gaining despite the market turbulence.
Also, given its low valuation and favorable analysts’ sentiments, I think the stock might be an ideal buy.
How Does Berry Corporation (BRY) Stack up Against Its Peers?
While BRY has an overall POWR Rating of A, one might consider looking at its industry peers, PrimeEnergy Resources Corporation (PNRG) and Epsilon Energy Ltd. (EPSN), which also have an overall A (Strong Buy) rating.
BRY shares were trading at $8.06 per share on Tuesday morning, up $0.01 (+0.12%). Year-to-date, BRY has gained 10.54%, versus a -18.22% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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