Despite market volatility, the recent second-quarter earnings reports from notable oil and gas companies in the United States reveal that the fossil fuel industry remains adept at generating significant profits, primarily propelled by strong demand and supply cuts imposed by OPEC+.
In such a scenario, investors could consider buying fundamentally sound oil stocks Cheniere Energy, Inc. (LNG), Weatherford International plc (WFRD), and CVR Energy, Inc. (CVI), which are well-equipped to capitalize on the industry tailwinds.
Before delving into the fundamentals of the featured stocks, let us look at a few factors brightening the industry’s prospects.
The most recent monthly report from the International Energy Agency (IEA) underscores the continuous upward trajectory of global oil demand, approaching historical peaks. Driven by a strong summer season for air travel and heightened petrochemical operations in China, the forecast points towards a projection of oil demand reaching 102.2 million barrels per day in 2023.
Moreover, analysts predict that Saudi Arabia will extend its voluntary reduction of 1 million barrels per day in oil output for the third consecutive month into October. In addition, Russia’s Deputy Prime Minister Alexander Novak revealed that the country will also decrease its oil exports by 300,000 barrels per day in September.
Given the declining inventories and constrained supply, especially as OPEC+ production approaches its lowest point in nearly two years, UBS predicts oil prices to rally beyond $90 per barrel by the year-end.
Furthermore, driven by the growth of urban areas, industrialization, and technological progress, the worldwide oilfield service market is projected to attain a value of $427.60 billion by 2028, expanding at a CAGR of 6.5% between 2023 and 2028.
Considering the industry dynamics, let us now examine the fundamentals of the featured oil stocks in detail in detail:
Cheniere Energy, Inc. (LNG)
LNG is an energy infrastructure company that primarily engages in Liquefied Natural Gas (LNG) related businesses in the United States. It owns and operates the Sabine Pass LNG terminal and Christi LNG terminal.
On August 16, LNG paid its shareholders a quarterly dividend of $0.39 per common share. The company’s annual dividend of $0.98 translates to a 1.58% yield on the prevailing prices, while its four-year average yield is 0.34%.
On June 26, LNG revealed its subsidiary, Cheniere Marketing, LLC, had secured a substantial long-term agreement for the sale and purchase of liquefied natural gas with ENN LNG (Singapore) Pte. Ltd., which is a completely owned subsidiary of ENN Natural Gas Co., Ltd. Under the agreement, ENN agreed to purchase 1.8 million tonnes per annum of LNG from Cheniere Marketing.
This strategic move strengthens the momentum of the SPL Expansion Project for LNG, highlighting the increasing need for expanded LNG capacity and showcasing LNG's ability to create customized solutions for its global customer base. This partnership emphasizes the company’s competitive advantage in meeting the evolving demands of the market.
LNG’s other revenues for the second quarter that ended June 30, 2023, increased 127.3% year-over-year to $150 million. The company’s income from operations rose 56.3% from the year-ago value to $2.31 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 prior-year quarter to $5.61.
Analysts expect LNG’s EPS for the fiscal year (ending December 2023) to increase 484.6% year-over-year to $32.97. Also, the company’s EPS is expected to improve by 30.2% per annum over the next five years. Moreover, it topped the EPS and revenue estimates in three of the trailing four quarters.
LNG’s revenue and EBIT have grown at CAGRs of 43.9% and 57.5% over the past three years, respectively. Its net income and EPS have increased at CAGRs of 91.3% and 93.3% over the same period, respectively.
Over the past three months, the stock has gained 14.1% to close the last trading session at $161.20.
LNG’s POWR Ratings reflect this robust outlook. It has an overall rating of A, which translates to a Strong 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 Value, Momentum, Sentiment, and Quality. Among the 87 stocks in the Energy - Oil & Gas industry, it is ranked first. To see additional POWR Ratings for Growth and Stability for LNG, click here.
Weatherford International plc (WFRD)
WFRD is an energy services company that provides equipment and services for drilling, evaluating, completing, producing, and intervening in oil, geothermal, and natural gas wells worldwide. The company operates through three segments: Drilling and Evaluation; Well Construction and Completions; and Production and Intervention.
On June 8, WFRD revealed that it secured a three-year agreement with Aramco for the provision of drilling services. Under this contract, WFRD will apply its comprehensive drilling services portfolio, encompassing cutting-edge technologies that integrate top-tier services, real-time data analysis, and inventive drilling tools to enhance operational efficiency across diverse settings.
The incorporation of these services and technological solutions is expected to contribute substantial benefits to Aramco's drilling endeavors.
This agreement underscores the significance of WFRD’s extensive array of drilling technologies. Additionally, the agreement presents an opportunity for the company to cater to customers' dynamic requirements in response to the growing requisites in the upstream drilling sector.
For the second quarter, which ended June 30, 2023, WFRD’s total revenues increased 19.7% year-over-year to $1.27 billion. Its operating income rose 93.3% from the year-ago value to $201 million.
The company’s net income amounted to $90 million, up 650% from the prior-year quarter. Its EPS rose significantly from the year-ago value to $1.12. Also, its adjusted EBITDA improved 56.5% year-over-year to $291 million.
The consensus revenue estimate of $1.29 billion for the third quarter (ending September 2023) represents a 14.9% increase year-over-year. The consensus EPS estimate of $1.58 for the same quarter reflects a 305.8% improvement year-over-year. Moreover, the company has an excellent surprise history, surpassing the revenue estimates in each of the trailing four quarters.
Over the past three years, its revenue and EBITDA have grown at CAGRs of 1.4% and 79.6%, respectively. Likewise, its levered FCF has improved at a CAGR of 461.9% over the same period.
The stock has gained 208.3% over the past year to close the last trading session at $84.71.
WFRD’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to Buy in our proprietary rating system.
It also has an A grade for Growth and Momentum and a B for Quality. Within the same industry, it is ranked #2. Click here to see the other ratings of WFRD for Value, Stability, and Sentiment.
CVR Energy, Inc. (CVI)
CVI and its subsidiaries engage in petroleum refining and nitrogen fertilizer manufacturing activities in the United States. It operates in two segments: Petroleum and Nitrogen Fertilizer.
On August 21, CVI paid its shareholders a quarterly and a special dividend of $0.50 per share and $1 per share, respectively. The company’s annual dividend translates to a 6.07% yield on the prevailing prices, while its four-year average dividend yield is 12.69%. Its dividend payouts have grown at a CAGR of 2.1% over the past three years.
In the second quarter that ended June 30, 2023, CVI’s net sales amounted to $2.24 billion, while its operating income stood at $224 million. During the same period, the company’s net income and EPS amounted to $168 million and $1.29, respectively. Also, its cash and cash equivalents came in at $751 million, up 47.3% compared to $510 million as of December 31, 2022.
Street expects CVI’s revenue and EPS for the third quarter (ending September 30, 2023) to be $2.43 billion and $1.52, respectively. Moreover, the company surpassed the EPS and revenue estimates in three of the trailing four quarters, which is promising.
Additionally, CVI’s revenue and EBIT have grown at CAGRs of 25.6% and 99.5% over the past three years, respectively. Likewise, its levered FCF and net income have increased at CAGRs of 239.5% and 95.4% over the same period, respectively.
CVI’s shares have gained 43.5% over the past three months to close the last trading session at $32.93.
It’s no surprise that CVI has an overall rating of B, which translates to Buy in our proprietary rating system. It has an A grade for Quality and a B for Momentum. Out of 87 stocks in the same industry, it is ranked #3.
In addition to the POWR Ratings we’ve stated above, we also have CVI’s ratings for Growth, Value, Stability, and Sentiment. Get all CVI ratings here.
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LNG shares were trading at $162.55 per share on Monday morning, up $1.35 (+0.84%). Year-to-date, LNG has gained 9.24%, versus a 16.30% 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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