Surging oil and gas demand worldwide and constrained supply are likely to push prices higher, positioning the energy sector for robust profitability and growth. Also, oil and gas companies are increasingly adopting digital technology, driving the industry’s prospects.
Given the industry’s tailwinds, it could be wise to invest in quality energy stocks Liberty Energy Inc. (LBRT), Delek US Holdings, Inc. (DK), and Dorchester Minerals, L.P. (DMLP) for solid returns.
Despite lingering macroeconomic headwinds, the Organization of the Petroleum Exporting Countries (OPEC) predicts higher oil demand for longer. OPEC expects world oil demand to grow by 2.46 million barrels per day (bpd) in 2023. Next year, global oil demand will increase by 2.25 million bpd.
Solid economic growth and continued improvements in China will be the primary drivers of elevated oil demand.
Further, in its 2023 World Oil Outlook (WOO), OPEC projects world demand to reach 116 million bpd by 2045, an increase from 99.6 million bpd in 2022. For its long-term oil demand forecast to be met, the group said that oil sector investments of about $14 trillion, or $610 billion on average per year, would be needed.
Through 2023, OPEC members have slashed their crude oil production in an effort to boost prices. Recently, various OPEC+ oil producers agreed to voluntary output cuts totaling around 2.2 million bpd in the first quarter of 2024. Saudi Arabia, the world’s biggest crude exporter, will lead the effort by extending a voluntary output cut of 1 million bpd, previously intended till the year-end.
Along with Saudi, the following voluntary barrel-per-day production cuts were announced: Russia by 500,000; Iraq by 223,000; the United Emirates by 163,000; Kuwait by 135,000; Kazakhstan by 82,000; Algeria by 51,000; and Oman by 42,000. Also, OPEC+ announced after the meeting that Brazil, another major producer, will join at the start of next year.
U.S. oil and gas production is set to break records this year. The latest federal government forecast reflected a record extraction of 12.9 million barrels of crude oil per day, which amounts to more than double that from a decade ago.
The gas production also increased with a glut of new export terminals on the Gulf of Mexico coast, embarking a boom that will witness U.S. LNG exports double in the following four years.
Further, the U.S. Energy Information Administration (EIA) expects global liquid fuel consumption to increase by 1.8 million b/d this year and by 1.3 million b/d in 2024. Most of the growth in liquid fuel demand is from non-OECD Asia, predominantly driven by China and India.
Digital transformation has significantly contributed to the rapid development of the energy sector. Oil and gas exploration, production, and mining companies are increasingly leveraging AI, machine learning, IoT, big data analysis, and blockchain technologies.
The global smart energy market size is expected to reach around $394.99 billion by 2032, growing a CAGR of 10.5% during the forecast period from 2023 to 2032. The market utilizes smart grids, IoT devices, and data analytics to offer efficient management of energy resources.
Given the industry’s robust outlook, investing in fundamentally strong energy stocks LBRT, DK, and DMLP could be wise now.
Let’s discuss the fundamentals of these stocks in detail:
Liberty Energy Inc. (LBRT)
LBRT offers hydraulic services and related technologies to onshore oil and natural gas exploration and production companies. It provides hydraulic fracturing services, including complementary services, like wireline services, proppant delivery solutions, data analytics, related goods and technologies, and other services comprising design and pump diagnostic fracture injection tests.
On October 17, LBRT announced a dividend of $0.07 per share of Class A common stock, paid on December 20, 2023, to holders of record as of December 6, 2023. This dividend represents a 40% increase from the prior quarter.
"Our investment in differential technologies and innovative businesses build on our competitive advantage and expand our market opportunities. We are increasing our quarterly cash dividend by 40% in response to the significant growth in our per share earnings and cash generating abilities from our business transformation over the last three years,” said Chris Wright, LBRT’s CEO.
LBRT pays an annual dividend of $0.22, which translates to a yield of 1.19% at the current share price. Its four-year average dividend yield is 0.95%. Moreover, the company’s dividend payouts have increased at a CAGR of 63.9% over the past three years.
In terms of forward non-GAAP P/E, LBR is trading at 5.69x, 43.8% lower than the industry average of 10.13x. Likewise, the stock’s forward EV/EBITDA multiple of 2.92 is 46.1% lower than the industry average of 5.42. Also, its forward Price/Sales of 0.66x is 54.4% lower than the industry average of 1.44x.
LBRT’s revenue and EBITDA have grown at respective CAGRs of 18.1% and 22.3% over the past five years. The company’s EBIT has increased 20.3% over the same timeframe, while its net income and EPS have improved at CAGRs of 28.8% and 6.9%, respectively.
For the third quarter that ended September 30, 2023, LBRT’s total revenue grew 2.3% year-over-year to $1.21 billion. The company’s operating income rose 12.2% year-over-year to $205.23 million. Its adjusted net income was $148.61 million or $0.85 per share, indicating increases of 1% and 9% from the year-ago value, respectively.
In addition, LBRT’s adjusted EBITDA increased 15.3% year-over-year to $319.21 million. The company’s total assets came in at $3.09 billion as of September 30, 2023, compared to $2.57 billion as of December 31, 2022.
Street expects LBRT’s revenue for the fiscal year (ending December 2023) to increase 14.7% year-over-year to $4.76 billion. The company’s EPS for the current year is expected to grow 24.5% year-over-year to $3.25. Moreover, the company topped the consensus revenue and EPS estimates in three of the trailing four quarters, which is impressive.
Shares of LBRT have gained 45.2% over the past six months and 26.8% year-to-date to close the last trading session at $18.51.
LBRT’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.
LBRT has a B grade for Value and Momentum. It is ranked #14 out of 49 stocks in the Energy - Services industry.
In addition to the POWR Ratings we’ve stated above, we also have LBRT ratings for Stability, Quality, Sentiment, and Growth. Get all LBRT ratings here.
Delek US Holdings, Inc. (DK)
DK is an integrated downstream energy business company. It operates through three segments: Refining; Logistics; and Retail. The Refining segment processes crude oil and other feedstock for manufacturing; the Logistics segment gathers, transports, and stores crude oil, intermediate, and refined products; and the Retail segment owns convenience store sites.
On November 1, DK announced a regular quarterly dividend of $0.24 per share paid on November 20, 2023, to shareholders of record on November 13th, 2023. This dividend payment reflects an increase of $0.05 from the previous quarterly dividend. The dividend increase highlights the company’s commitment to return value to its shareholders.
In terms of forward Price/Sales, DK is currently trading at 0.10x, 92.8% lower than the industry average of 1.44x. Likewise, the stock’s forward EV/EBIT multiple of 8.61 is 7.15% lower than the industry average of 9.27. Also, its forward Price/Cash Flow of 2.42x is 47.9% lower than the industry average of 4.64x.
During the third quarter that ended on September 30, 2023, DK reported net revenues of $4.75 billion. The company’s operating income rose 324% from the year-ago value to $224.70 million. Its net income amounted to $136.10 million, or $1.97 per share, compared to $16.80 million, or $0.10 per share, in the previous year’s period, respectively.
In addition, the company’s cash and cash equivalents came in at $901.70 million as of September 30, 2023, compared to $841.30 million as of December 31, 2022.
Over the past six months, the stock has gained 14.8% and 3% year-to-date to close the last trading session at $26.56.
DK’s promising outlook is 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 a B grade for Growth and Value. Within the Energy – Oil & Gas industry, DK is ranked #14 of 84 stocks.
Click here to access additional ratings of DK for Momentum, Sentiment, Quality, and Stability.
Dorchester Minerals, L.P. (DMLP)
DMLP engages in the acquisition, ownership, and administration of producing and non-producing natural gas and crude oil royalty, net profit, and leasehold interests. The company’s royalty properties consist of producing and non-producing mineral, royalty, and overriding royalty, net profits, and leasehold interests in 592 counties and parishes in 28 states.
On November 7, DMLP announced the consummation of a notable lease transaction in the Midland Basin. Further, it leased 243 net acres in two tracts of land in Reagan County, Texas, for an amount of $30,000 per acre, and it includes a 25% royalty. These leases will substantially increase the partnership’s fourth-quarter distribution among the unitholders.
DMLP’s revenue and EBITDA have grown at respective CAGRs of 41.5% and 47.6% over the past three years. The company’s EBIT has increased 56.5% over the same timeframe, while its net income and EPS have improved at CAGRs of 55.9% and 50.6%, respectively.
DMLP’s trailing-12-month gross profit and EBIT margins of 96.41% and 73.44% are 103.7% and 237.9% higher than the respective industry averages of 47.32% and 21.73%. Further, the stock’s trailing-12-month net income margin of 70.35% is 405.1% higher than the industry average of 13.93%.
In the third quarter that ended September 30, 2023, DMLP reported total operating revenues of $42.59 million. Operating revenues from Royalties grew 6.7% year-over-year to $35.79 million. Its cash and cash equivalents were $43.49 million as of September 30, 2023, compared to $40.75 million as of December 31, 2022.
Also, the company’s total assets came in at $192.29 million versus $176.24 million as of December 31, 2022.
DMLP’s stock has surged 11.8% over the past month and 9.6% over the past year to close the last trading session at $31.45.
DMLP’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 Quality. DMLP is ranked #15 out of 26 stocks in the A-rated MLPs – Oil & Gas industry.
Click here to access additional ratings of DMLP for Value, Growth, Momentum, Stability, and Sentiment.
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LBRT shares were unchanged in premarket trading Tuesday. Year-to-date, LBRT has gained 17.18%, versus a 25.73% 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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