Amid an uptick in oil deals, coupled with escalating oil and gas prices, the energy sector is poised to remain resilient. Therefore, it could be prudent to invest in fundamentally robust energy stocks Weatherford International plc (WFRD), Sasol Limited (SSL), and Koninklijke Vopak N.V. (VOPKY) for growth.
The demand for oil and gas is predicted to persist in the long term, driven by burgeoning energy requirements, a growing population, and swift industrial expansion. Recent geopolitical strife in the Middle East and maritime hostilities perpetrated by the Iran-aligned Houthi faction on Red Sea shipping operations have lent further support to current oil prices.
Investor sentiment toward the oil and gas price outlook is less bearish now. This shift occurred as U.S. shale producers implemented scaled-back drilling activity, while Saudi Arabia and its OPEC+ allies extended their output cut measures for a further quarter. The cumulative impact of these actions underpins the anticipated strength and stability of oil and gas markets moving forward.
The Energy Information Administration estimates that Brent crude oil price will average $82 per barrel (b) in 2024 and $79/b in 2025. The escalating tensions in the Red Sea shall exceed the current potential for prices.
Grant Thornton’s 2024 energy outlook suggests that midstream companies are well-positioned for success. The oil and gas companies are expected to reinvest profits to enable even stronger future returns by accessing new sources of capital.
Furthermore, the U.S. energy sector went on a $250-billion buying spree in 2023, and more transactions are expected in 2024, which could positively affect the energy industry. Experts anticipate more oil deals worth $50 billion or higher popping up in the next two years.
Considering these conducive trends, let's take a look at the fundamentals of the three Energy stocks.
Weatherford International plc (WFRD)
WFRD provides equipment and services for the drilling, evaluation, completion, production, and intervention of 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 November 7, 2023, WFRD entered into a memorandum of understanding (MOU) with Honeywell to combine its CygNet™ SCADA platform and Honeywell’s Emissions Management suite. CygNet™ SCADA is widely recognized for its real-time data processing capabilities in the energy sector, facilitating operational decisions. Meanwhile, Honeywell’s Emissions Management suite provides outcome-driven solutions for emissions measurement, monitoring, and reduction.
This partnership aims to provide customers with advanced emissions management tools to accelerate their decarbonization strategies. By integrating these systems, users will gain immediate access to vital data, enabling swift risk mitigation and enhancing operational efficiency in achieving decarbonization goals.
WFRD’s trailing-12-month asset turnover ratio of 1.05x is 97.4% higher than the industry average of 0.53x, while its trailing-12-month cash per share of $13.31 is significantly higher than the industry average of $0.98.
Over the past three and five years, its EBITDA grew at CAGRs of 35.7% and 9.6%, respectively, while its revenue grew at an 11.7% CAGR over the past three years.
For the fiscal fourth quarter that ended December 31, 2023, WFRD’s total revenues and operating income stood at $1.36 billion and $216 million, up 12.7% and 27.8% year-over-year, respectively. Moreover, its adjusted free cash flow increased 84.2% from the prior-year quarter to $315 million.
For the same quarter, its net income attributable to WFRD and income per share stood at $140 million and $1.90, up 94.4% and 91.9% from the year-ago quarter, respectively.
Street expects WFRD’s revenue and EPS for the fiscal first quarter ending March 2024 to increase 11.6% and 51.9% year-over-year to $1.32 billion and $1.47, respectively. The company surpassed consensus revenue estimates in each of the trailing four quarters and consensus EPS estimates in three of the trailing four quarters, which is impressive.
The stock has gained 66.8% over the past nine months to close the last trading session at $105.44. Over the past year, it has gained 52.9%.
WFRD’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has a B grade for Growth and Quality. Within the Energy - Oil & Gas industry, it is ranked #8 out of 84 stocks.
To see additional POWR Ratings for Value, Momentum, Stability, and Sentiment for WFRD, click here.
Sasol Limited (SSL)
Headquartered in Johannesburg, South Africa, SSL operates as an integrated chemical and energy company. Its segments include Advanced Materials; Base Chemicals; Essential Care Chemicals; and Performance Solutions.
SSL’s board of directors declared an interim gross cash dividend of SA 200 cents per share for the six months that ended December 31, 2023. The dividend is payable on the ordinary shares and the Sasol BEE ordinary shares on March 18. It pays an annual dividend of $0.63 per share, which translates to a dividend yield of 8.27% on the current share price. Its four-year average yield is 2.96%.
SSL’s trailing-12-month cash from operations of $1.85 billion is 317.1% higher than the industry average of $443.55 million. Its trailing-12-month gross profit and EBIT margins of 42.90% and 16.12% are 50.7% and 44.7% higher than the industry averages of 28.46% and 11.14%, respectively.
Over the past three and five years, its revenue grew at CAGRs of 14.7% and 7.1%, respectively, while its EBITDA grew at 17.6% and 4.8% CAGRs over the same periods.
For the six months that ended December 31, 2023, SSL’s turnover and operating profit before remeasurement items stood at R136.29 billion ($7.17 billion) and R21.70 billion ($1.14 billion), respectively.
For the same period, earnings for the period attributable to owners of SSL and earnings per share stood at R9.58 billion ($503.96 million) and R13.58, respectively. As of December 31, 2023, SSL’s current assets amounted to R126.80 billion ($6.67 billion), compared to R123.90 billion ($6.52 billion) as of December 31, 2022.
Street expects SSL’s revenue and EPS for the fiscal year ending June 2024 to be $14.55 billion and $2.39, respectively.
The stock has declined marginally intraday to close the last trading session at $7.58.
SSL’s robust prospects are reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
SSL has a B grade for Growth, Value, Momentum, and Quality. Within the A-rated Foreign Oil & Gas industry, it is ranked #8 out of 42 stocks.
Beyond what we’ve stated above, we have also rated the stock for Stability and Sentiment. Get all ratings of SSL here.
Koninklijke Vopak N.V. (VOPKY)
Headquartered in Rotterdam, the Netherlands, VOPKY stores and handles liquid chemicals, gases, and oil products to the energy and manufacturing markets worldwide. The company operates LPG and chemical gas, industrial, chemical, and oil terminals and owns and operates specialized facilities consisting of tanks, jetties, truck loading stations, and pipelines.
On February 26, VOPKY successfully commissioned 40,000 cubic meters of capacity at its Sebarok terminal for blending biofuels into marine fuels. The existing pipeline system was also converted to a dedicated biofuel blending service.
The new capacity is underpinned by customer commitment. VOPKY's Sebarok terminal is located close to Singapore's eastern anchorage, where a large part of bunkering activity takes place.
VOPKY announced that a dividend of €1.50 per ordinary share, payable in cash, will be proposed at the Annual General Meeting on April 24. This represents a 15% increase compared to 2022. It pays an annual dividend of $1.43 per share, which translates to a dividend yield of 3.84% on the current share price.
Its four-year average yield is 3.77%. VOPKY’s dividend payments have grown at CAGRs of 4.4% and 2.3% over the past three and five years, respectively.
On February 14, VOPKY announced the start of a share buyback program to return up to €300 million ($325.58 million) to shareholders. The share buyback program will run until the end of 2024.
VOPKY’s trailing-12-month CAPEX/Sales of 28.05% is 88.2% higher than the industry average of 14.90%. Its trailing-12-month gross profit and net income margins of 95.67% and 31.67% are 106.3% and 130.1% higher than the industry averages of 46.38% and 13.76%, respectively.
Over the past three and five years, its net income grew at CAGRs of 15.7% and 12.4%, respectively, while its diluted EPS grew at 15.9% and 12.7% CAGRs over the same periods.
For the fiscal fourth quarter that ended December 31, 2023, VOPKY’s revenues and EBIT stood at €352.80 million ($382.88 million) and €150.20 million ($163 million), respectively.
For the same quarter, its net profit attributable to holders of ordinary shares and earnings per ordinary share increased 23.2% and 22.5% from the year-ago quarter to €109 million ($118.29 million) and €0.87, respectively.
Street expects VOPKY’s revenue for the fiscal year ending December 2024 to be $1.42 billion. The company surpassed consensus revenue estimates in three of the trailing four quarters.
The stock has gained 17.8% over the past month to close the last trading session at $37.28. Over the past year, it has gained 14.8%.
VOPKY’s POWR Ratings reflect its positive prospects. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
VOPKY has a B grade for Momentum, Stability, and Quality. Within the Foreign Oil & Gas industry, it is ranked #7.
Click here for the additional POWR Ratings for VOPKY (Growth, Value, and Sentiment).
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
WFRD shares were unchanged in premarket trading Wednesday. Year-to-date, WFRD has gained 7.78%, versus a 6.71% rise in the benchmark S&P 500 index during the same period.
About the Author: Neha Panjwani
From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance.
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