In this article, I evaluated two energy stocks, Marathon Petroleum Corporation (MPC) and Camber Energy, Inc. (CEI), to determine which could generate better returns. I believe MPC is the better investment for reasons explained throughout this piece.
Oil and gas prices surged significantly in 2022 due to high demand and supply disruptions aggravated by the Russia-Ukraine war. Given the unusual supply-demand dynamics, energy was the best-performing S&P 500 sector last year, providing more than 60% returns.
Despite oil and gas prices retreating from their peaks amid lingering macroeconomic headwinds, sustained global energy demand and constrained supplies position the energy sector well for significant growth this year. The Economist Intelligence Unit (EIU) forecasted global energy consumption to grow 1.3% in 2023 amid high energy prices.
Moreover, China’s reopening after lifting its COVID-19 restrictions is expected to increase the global energy appetite.
Furthermore, oil prices recently posted gains after Russia announced cutting oil output by 500,000 barrels per day in response to Western bans on Moscow’s crude and oil products implemented in the past few months. In a note to clients, UBS Strategist Giovanni Staunovo said, “Lower Russian production together with China’s reopening should tighten the oil market further over the coming quarters.”
MPC is a clear winner in one-month price performance, with 5.1% returns compared to CEI’s 19.2% decline. MPC has gained 33.5% over the past six months, while CEI plunged 89.6%. Also, MPC’s 72.2% gains over the past month compare to CEI’s 94.7% decline.
Here are the reasons why we think MPC could perform better in the near term:
Dividend Payment Record
On January 31, 2023, MPC’s President and CEO, Michael J. Hennigan, said, “We returned nearly $12 billion through share repurchases during the year, bringing total repurchases to almost $17 billion since May 2021. In addition, back in November, we increased our quarterly dividend by 30%. Today, we announced a 2023 MPC standalone capital spending outlook of $1.3 billion, and with the incremental share repurchase authorization we now have $7.6 billion in remaining authorization.”
The company pays $3.00 annually as dividends, which translates to a yield of 2.32% at the current price. Its dividend payouts have grown at a 10.4% CAGR over the past five years.
On the other hand, CEI doesn't currently pay dividends.
Recent Financial Results
MPC’s revenues and other income increased 12.6% year-over-year to $40.09 billion in the fourth quarter that ended December 31, 2022. Its income from continuing operations grew 166.5% year-over-year to $4.74 million, while its adjusted EBITDA from continuing operations was $5.80 billion, up 107.6% from the same period last year. Net income and net income per share came in at $3.64 billion and $7.13, up 229.5% and 457% year-over-year, respectively.
CEI’s operating expenses increased 34.9% year-over-year to $1.22 million for the third quarter that ended September 30, 2022. Its loss from operations widened 32.8% from the year-ago value to $1.22 million. Also, net loss attributable to common stockholders and loss per weighted average number of common shares outstanding was $23.28 million and $0.05, respectively.
Profitability
MPC’s trailing-12-month revenue is 296.2 times what CEI generates. MPC is more profitable with trailing-12-month ROTA and cash from operations of 16.15% and 16.36 billion compared to CEI’s negative 26.71% and 4.29 million, respectively.
Furthermore, MPC’s trailing-12-month asset turnover ratio of 2.03x compares with CEI’s 0.02x.
Valuation
In terms of trailing-12-month Price/Sales, MPC is currently trading at 0.37x, 98.2% lower than CEI’s 20.31x. In terms of trailing-12-month EV/Sales, MPC’s 0.45x compares with CEI’s 100.53x.
POWR Ratings
MPC has an overall rating of A, which equates to a Strong Buy in our proprietary POWR Ratings system. Conversely, CEI has an overall rating of F, translating to a Strong Sell. The POWR Ratings are calculated 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. MPC has a grade of A for Quality, in sync with its higher-than-industry profitability. MPC’s 16.15% trailing-12-month ROTA is 106.7% higher than the industry average of 7.81%.
CEI, on the other hand, has a grade of D for Quality, consistent with its relatively lower profitability metrics. CEI has a trailing-12-month ROTA of negative 26.71%, compared to the industry average of 7.81%.
In addition, MPC has a grade of B for Growth. The Growth grade is justified by its stable rise in financials over the past years. On the other hand, CEI has a Growth grade of C, consistent with its mixed financial performance. Over the past three years, MPC’s revenue has grown at a 17% CAGR, whereas CEI’s revenue has declined at a CAGR of 67%.
Of the 91 stocks in the B-rated Energy-Oil & Gas industry, MPC is ranked #4, while CEI is ranked #89.
Beyond what we’ve stated above, we have also rated both stocks for Stability, Momentum, Value, and Sentiment. Click here to view MPC ratings. Get all CEI ratings here.
The Winner
The energy demand is expected to remain high this year, with emerging markets such as China contributing the most. With resurgent global energy demand amid constrained supplies, energy producers MPC and CIE are expected to grow substantially in the near future. However, CIE’s relatively weak financials, low profitability, and bleak growth prospects make its competitor MPC a better buy now.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Energy-Oil & Gas industry here.
Consider This Before Placing Your Next Trade…
We are still in the midst of a bear market.
Yes, some special stocks may go up. But most will tumble as the bear market claws ever lower.
That is why you need to discover the brand new “Stock Trading Plan for 2023” created by 40-year investment veteran Steve Reitmeister. There he explains:
- Why it's still a bear market
- How low stocks will go
- 9 simple trades to profit on the way down
- Bonus: 2 trades with 100%+ upside when the bull market returns
You owe it to yourself to watch this timely presentation before placing your next trade.
MPC shares were trading at $129.02 per share on Thursday morning, down $0.17 (-0.13%). Year-to-date, MPC has gained 11.50%, versus a 3.11% 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.
MPC vs. CEI: Which Energy Stock Has the Potential to Fuel Better Returns? StockNews.com
