Despite several macro uncertainties, the energy sector’s outlook appears bright with crude oil prices in 2024 forecasted to remain close to last year’s level due to growing energy demand worldwide and tight supplies worsened by rising conflicts in the Middle East and continued attacks in the Red Sea region.
Considering these factors in mind, it could be wise to invest in quality energy stocks Cheniere Energy, Inc. (LNG), NCS Multistage Holdings, Inc. (NCSM), and Superior Drilling Products, Inc. (SDPI) for solid returns.
OPEC seems optimistic about global oil demand growth in 2024 and beyond on solid economic forecasts. In its monthly oil market report, the producer group expects the world’s thirst for oil to rise 2.25 million barrels per day (b/d) this year and another 1.80 million b/d in 2025, driven by the strengthening of the Chinese economy.
On the supply side, Saudi Arabia, Russia, and other members of OPEC+ agreed to voluntary production cuts totaling about 2.2 million b/d for the first quarter of 2024 in an attempt to support the stability and balance of oil markets. Also, amid the escalating tensions in the Middle East and attacks on the Red Sea, oil supply disruptions remain at an elevated risk.
This Monday, oil prices surged nearly 2% on rising concerns over global energy supplies after a Ukrainian drone strike on Russia’s Novatek.
The U.S. Energy Information Administration (EIA) forecasts global liquid fuel consumption to increase by 1.3 million b/d in 2024. Most of the growth in liquid fuel demand can be attributed to non-OECD Asia, predominantly driven by China and India.
Crude oil production in the United States will also be subject to a wide demand in 2024. The forecasts state that crude oil production will reach 13.2 million barrels per day (b/d) in 2024 and more than 13.4 million b/d in 2025, both of which would be new records.
In its Short-Term Energy Outlook (STEO), EIA expects the Brent crude oil price to average $82 per barrel in 2024 and $79 next year, close to last year’s average of $82 a barrel.
According to a report by Persistence Market Research, the global drilling rig market is expected to grow at a CAGR of 5.8%, resulting in a market volume of $18 billion by 2030. The growing exploration and production activities will boost the demand for efficient and high-performing drilling platforms, driving the market’s growth.
Given the industry’s robust outlook, investing in fundamentally strong energy stocks LNG, NCSM, and SDPI could be wise now.
Let’s discuss the fundamentals of these stocks in detail:
Cheniere Energy, Inc. (LNG)
LNG is an energy infrastructure company that engages in liquefied natural gas (LNG) related businesses. The company owns and operates the Sabine Pass LNG terminal in Cameron Parish, Louisiana, and the Corpus Christi LNG terminal near Corpus Christi, Texas. It also owns the Creole Trail pipeline and operates the Corpus Christi pipeline.
On November 29, 2023, LNG’s Sabine Pass Liquefaction Stage V, LLC (SPL Stage 5) entered a long-term Integrated Production Marketing (IPM) gas supply agreement with ARC Resources U.S. Corp., a subsidiary of ARC Resources Ltd. (AETUF), a leading natural gas producer in Canada.
Under the IPM agreement, ARC Resources will sell 140,000 MMBtu per day of natural gas to SPL Stage 5 for a term of 15 years. The deal is expected to accelerate the Sabine Pass Expansion Project and ensure increased LNG supplies to Europe.
On November 2, LNG announced that its subsidiary, Cheniere Marketing, LLC, signed a long-term liquefied natural gas (LNG) sale and purchase agreement (SPA) with Foran Energy Group Co. Ltd. As per the SPA, Foran agreed to purchase about 0.9 million tonnes per annum of LNG for 20 years from Cheniere Marketing on a free-on-board basis.
Deliveries will be executed upon the start of the commercial operations of the second train of the Sabine Pass Liquefaction Expansion Project. The 20-year SPA is the first contract expected to support the second train of the Sabine Pass Expansion Project.
On October 30, LNG declared a quarterly cash dividend of $0.435 per common share, indicating an increase of approximately 10% from the prior quarter, paid on November 17, 2023, to shareholders of record as of the close of business on November 9, 2023.
LNG pays an annual dividend of $1.74, which translates to a yield of 1.08% at the current share price. And its four-year average dividend yield is 0.43%.
For the third quarter that ended September 30, 2023, LNG reported total revenues of $4.16 billion. The company’s income from operations was $2.75 billion, compared to a loss from operations of $3.02 billion in the prior year’s quarter. Its net income came in at $1.70 billion versus a net loss of $2.39 billion in the previous year’s period.
In addition, LNG’s cash and cash equivalents as of September 30, 2023, were $3.86 billion, compared to $1.35 billion as of December 31, 2022.
As per the 2023 full-year financial guidance, the company reaffirmed consolidated adjusted EBITDA to range between $8.30 billion to $8.80 billion. And its distributable cash flow is expected to be between $5.80 billion and $6.30 billion.
Analysts expect LNG’s EPS for the fiscal year (ended December 2023) to increase 555.1% year-over-year to $36.95. Further, the company’s revenue for the second quarter (ending June 2024) is expected to grow 6.2% year-over-year to $4.35 billion. Moreover, the company topped the consensus EPS estimates in each of the trailing four quarters, which is impressive.
Shares of LNG have gained 1.7% over the past six months and 4.8% over the past year to close the last trading session at $162.30.
LNG’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
LNG has an A grade for Sentiment and a B for Value, Quality, and Momentum. It has topped among the 49 stocks in the Energy – Oil & Gas industry.
In addition to the POWR Ratings we’ve stated above, we also have LNG ratings for Stability and Growth. Get all LNG ratings here.
NCS Multistage Holdings, Inc. (NCSM)
NCSM is a leading provider of highly engineered products and support services that enable oil and gas operators to optimize oil and natural gas well completions and field development strategies internationally. The company offers fracturing systems, including casing-installed sliding sleeves, downhole frac isolation assemblies, and sand jet perforating products.
In terms of forward EV/Sales, NCSM is currently trading at 0.39x, 79.9% lower than the industry average of 1.92x. Likewise, the stock’s forward EV/EBITDA multiple of 3.88 is 24.6% lower than the industry average of 5.15. Also, its forward Price/Sales of 0.25x is 81.3% lower than the industry average of 1.31x.
During the third quarter that ended on September 30, 2023, NCSM reported total revenues of $38.28 million. Also, adjusted net income attributable to NCSM came in at $4.74 million and $1.91 per share, increases of 4.8% and 4.9% from the prior year’s quarter, respectively.
In addition, the company’s total assets stood at $141.70 million as of September 30, 2023, compared to $138.60 million as of December 31, 2022.
Analysts expect NCSM’s revenue for the fiscal year (ending December 2024) to increase 3.7% year-over-year to $152.40. The consensus EPS estimate of $0.49 for the current year, compared to a loss per share of $15.62 in the prior year. Further, the company’s EPS is expected to grow 100% per annum over the next five years.
Over the past month, the stock has declined 11.7% to close the last trading session at $14.95.
NCSM’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
The stock has an A grade for Momentum and a B for Sentiment, Quality, and Value. Within the B-rated Energy – Services industry, NCSM is ranked #5 of 45 stocks.
Click here to access additional ratings of NCSM for Growth and Stability.
Superior Drilling Products, Inc. (SDPI)
SDPI is a drilling and completion tool technology company that designs, engineers, manufactures, sells, rents, and repairs drilling and completion tools. The company’s drilling solutions include Drill-N-Ream, Strider, and V-Stream. It also engages in the manufacture and refurbishment of polycrystalline diamond compact drill bits for an oil field services company.
SDPI’s trailing-12-month gross profit and levered FCF margins of 16.41% and 13.82% are 32.5% and 139.5% higher than the respective industry averages of 46.36% and 5.77%. Furthermore, the stock’s trailing-12-month ROCE of 24.05% is 22.3% higher than the industry average of 19.67%.
Over the past three years, SDPI’s revenue and EBITDA have grown at respective CAGRs of 18.3% and 236.8%. The company’s tangible book value has increased 43.6% over the same timeframe, while its total assets and levered free cash flow have improved at CAGRs of 19.8% and 3.4%, respectively.
SDPI reported total revenues of $5.05 million in the third quarter that ended September 30, 2023. The company’s operating income and net income came in at $126 million and $14 thousand, respectively. Also, the company’s total assets came in at $22.62 million as of September 30, 2023, versus $17.60 million as of December 31, 2022.
As per 2023 guidance, SDPI expects revenue to be between $22 million and $24 million. The company’s adjusted EBITDA is expected to be between $5.50 million and $6.50 million.
Street expects SDPI’s revenue for the fiscal year (ended December 2023) to increase 16.5% year-over-year to $22.25 million, while its EPS is anticipated to grow 100% from the year-ago value to $0.08.
For the second quarter (ending June 2024), the company’s revenue and EPS are expected to increase 18.9% and 200% year-over-year to $6.38 million and $0.03, respectively.
SDPI’s stock has declined marginally over the past month to close the last trading session at $0.73.
SDPI’s POWR Ratings reflect robust prospects. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
The stock has an A grade for Momentum and Sentiment and a B for Quality and Value. SDPI is ranked #2 out of 16 stocks in the Energy - Drilling industry.
Click here to access additional ratings of SDPI (Growth and Stability).
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LNG shares rose $0.45 (+0.28%) in premarket trading Tuesday. Year-to-date, LNG has declined -4.66%, versus a 1.92% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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