The global oil market appears to be on a solid footing as the Organization of the Petroleum Exporting Countries (OPEC) emphasizes the robust fundamentals for the year's second half. The producer group maintains its optimistic forecast for strong oil demand in 2024 while revising its expectations for global economic growth upward.
Given this backdrop, adding quality energy stocks, REX American Resources Corporation (REX), NOW Inc. (DNOW), and ChampionX Corporation (CHX), with a focus on earnings consistency and high profitability, could be beneficial.
According to OPEC, the global oil demand is expected to rise by 2.25 million barrels per day (bpd) in 2024. The organization believes that solid economic growth amid continued improvements in China will boost oil consumption next year.
In addition, OPEC has nudged its forecast for world economic growth this year to 2.7% and raised the outlook for 2024 by the same increment to 2.6%. This upbeat view is attributed to the stronger-than-expected performance of the United States, Brazil, and Russia in the first half of 2023.
Moreover, the combination of a robust summer for air travel and increased petrochemical activity in China is expected to drive oil demand to hit 102.2 million b/d in 2023.
Furthermore, the global oilfield services market is anticipated to hit $427.60 billion by 2028, exhibiting a CAGR of 6.5%. Also, SPDR S&P Oil & Gas Exploration & Production ETF (XOP) has gained 20% over the past three months, upholding investors’ interest.
With these favorable trends in mind, let's delve into the fundamentals of the three Energy – Services stock picks, beginning with the third choice.
Stock #3: REX American Resources Corporation (REX)
REX produces and sells ethanol in the United States. The company also offers corn, distillers grains, non-food grade corn oil, gasoline, and natural gas. In addition, it provides dry distillers grains with soluble, which is used as a protein in animal feed.
In terms of forward EV/Sales, REX is trading at 0.64x, 70.7% lower than the industry average of 2.18x. Its forward EV/EBIT multiple of 7.34 is 21.8% lower than the industry average of 9.38x. In addition, REX’s forward Price/Sales ratio of 0.87 is 41.8% lower than the industry average of 1.50.
REX’s net sales and revenue increased 9.5% year-over-year to $212.71 million in the first quarter ended April 30, 2023. Its gross profit rose 26.2% from the prior-year quarter to $15.03 million.
The company’s attributable net income grew marginally from the year-ago value to $5.24 million, while net income per share increased 3.4% year-over-year to $0.30. Also, its cash, cash equivalents, and restricted cash at the end of the period stood at $81.05 million, up 13.2% year-over-year.
Street expects REX’s EPS for the current quarter (ending October 2023) to increase substantially year-over-year to $0.86. For the fiscal year 2024, its EPS is expected to reach $3.07, registering an impressive year-over-year growth of 95.5%. Moreover, it topped the EPS estimates in each of the trailing four quarters.
In addition, its revenue has grown at 30.1% and 13.7% CAGRs over the past three and five years, respectively. Moreover, its EBITDA has improved at a CAGR of 158.1% over the past three years.
REX’s trailing-12-month asset turnover ratio of 1.57x is 156.7% higher than the 0.61x industry average. Likewise, its trailing-12-month cash per share of $4.47 compares to the industry average of $0.66.
The stock has gained 27.3% year-to-date to close the last trading session at $40.56.
REX’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Sentiment. Within the Energy - Services industry, it is ranked #10. Click here to see the other ratings of REX for Growth, Value, Momentum, Stability, and Quality.
Stock #2: NOW Inc. (DNOW)
DNOW is a worldwide supplier of downstream energy and industrial products for petroleum refining, chemical processing, LNG terminals, power generation utilities, and industrial manufacturing operations. It offers its products under the DistributionNOW and DNOW brand names.
In terms of forward non-GAAP P/E, DNOW is trading at 11.22x, 36.1% lower than the industry average of 17.55x. Likewise, the stock’s forward EV/Sales and EV/EBITDA multiples of 0.43 and 5.47 are 75.2% and 51.1% lower than the industry averages of 1.72x and 11.18x, respectively.
For the second quarter that ended June 30, 2023, DNOW’s revenue increased 10.2% year-over-year to $594 million, and its operating profit grew 24.1% from the year-ago value to $36 million. The company’s non-GAAP EBITDA, excluding other costs, remained flat year-over-year at $47 million.
Net income attributable to DNOW excluding other costs increased 30.8% year-over-year to $34 million, while earnings per share attributable to DNOW stockholders excluding other costs stood at $0.31, up 34.8% year-over-year.
Analysts expect DNOW’s revenue to increase 10.1% year-over-year to $2.35 billion in the fiscal year 2023 ending December 31. The company’s EPS for the current year is expected to grow 2.6% year-over-year to $0.98. Moreover, the company surpassed the consensus revenue estimates in all four trailing quarters, which is impressive.
Over the past three years, its EBITDA has significantly increased at a CAGR of 472.9%, while its total grew at 9.9% CAGR in the same period.
The stock’s trailing-12-month ROTC and ROTA of 12.08% and 9.65% are 75.5% and 89.8% higher than the industry averages of 6.88% and 5.08%, respectively. Also, its asset turnover ratio of 1.76x compares to the industry average of 0.81x.
Shares of DNOW have gained 13.4% over the past three months to close the last trading session at $11.07.
It’s no surprise that DNOW has an overall B rating, equating to Buy in our proprietary rating system. It also has an A grade for Value and Momentum and a B for Quality. It is ranked #9 out of 48 stocks in the same industry.
To access additional ratings for DNOW’s Growth, Stability, and Sentiment, click here.
Stock #1: ChampionX Corporation (CHX)
CHX provides chemistry solutions, engineered equipment, and technologies worldwide to oil and gas companies. The company operates through four segments: Production Chemical Technologies; Production & Automation Technologies; Drilling Technologies; and Reservoir Chemical Technologies.
On July 28, CHX paid its shareholders a quarterly dividend of $0.085 per share on the company’s common stock. Its four-year average yield is 0.28%, while its annual dividend translates to a 0.96% yield on the current prices.
On April 26, ConocoPhillips recognized CHX in Norway with the 2022 Supplier Recognition Award (Focus in Execution), acknowledging its asset integrity program in the Greater Ekofisk area. The recognition exhibits CHX’s exceptional leadership in observance of ConocoPhillips’ SPIRIT values.
In terms of forward EV/Sales, CHX is trading at 1.90x, 12.7% lower than the industry average of 2.18x.
During the second quarter that ended June 30, 2023, CHX’s revenues amounted to $926.60 million, while its gross profit increased 33.2% year-over-year to $282.21 million. Its net income improved by 234.4% year-over-year to $96.63 million. Furthermore, its adjusted EPS came in at $0.49, representing a 75% increase from the prior-year quarter. CHX’s adjusted EBITDA stood at $186.24 million, up 34.7% year-over-year.
The consensus revenue estimate of $1.02 billion for the fiscal fourth quarter (ending December 2023) represents a 3.1% increase year-over-year. The consensus EPS estimate of $0.53 for the current quarter indicates a 24.3% improvement year-over-year. The company has an excellent earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
Its revenue has grown at 53% and 28.4% CAGRs over the past three and five years, respectively. Also, its EBITDA increased at a 92.1% CAGR over the past three years.
CHX’s trailing-12-month levered FCF margin of 14.80% is 141.6% higher than the 6.13% industry average. Likewise, its trailing-12-month asset turnover ratio of 1.14x is 87.2% higher than the industry average of 0.61x.
Over the past year, the stock has gained 60% to close the last trading session at $36.04.
CHX’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
It has an A grade for Momentum and a B for Growth and Quality. Among the 48 stocks in the industry, it is ranked #7. Click here to see the other ratings of CHX for Value, Stability, and Sentiment.
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CHX shares were trading at $36.19 per share on Tuesday afternoon, up $0.15 (+0.42%). Year-to-date, CHX has gained 25.89%, versus a 17.96% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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