The overall economy relapsed last year due to geopolitical turmoil and macroeconomic headwinds. However, on the contrary, the energy sector performed comparatively well. The Energy Select Sector SPDR Fund (XLE) has gained 26.1% over the past year, while the SPDR S&P 500 ETF Trust (SPY) plummeted 10.2% over the same period.
As per the U.S. Energy Information Administration’s Short-Term Energy Outlook for February, global liquids fuel consumption is likely to surge from an average of 99.4 million barrels per day (b/d) in 2022 to 102.3 million b/d in 2024, driven primarily by growth in China and other non-OECD countries.
Furthermore, after Beijing lifted its COVID restrictions, it is anticipated that almost half of the oil demand growth this year would come from China. As per the International Energy Agency, global oil demand is set to hit a record high of 101.7 million barrels per day this year.
Moreover, the EU ban on Russian fuel imports by sea, which began this month, and the G7 price cap, are bullish factors for oil prices. Iran’s national representative to OPEC, Afshin Javan, believes oil may rebound to around $100 per barrel in the second half of the year.
Against this backdrop, fundamentally strong energy stocks Marathon Petroleum Corporation (MPC) and Epsilon Energy Ltd. (EPSN) might be wise additions to your portfolio right now.
Marathon Petroleum Corporation (MPC)
MPC operates as an integrated downstream energy company, mainly in the United States. It operates through its two broad segments: Refining & Marketing; and Midstream.
On February 1, 2023, MPC’s subsidiary Virent used plant-based synthesized aromatic kerosene and helped power an Emirates Airline demonstration flight, the first in the Middle East and North Africa to use 100% sustainable aviation fuel (SAF) in one engine and traditional jet fuel in the other.
Dave Kettner, President and General Counsel of Virent, Inc., commented, “We're excited about this opportunity to work with our forward-thinking colleagues at Emirates, GE Aerospace, Boeing, Honeywell and Neste as we demonstrate that we can power sustainable aviation without modifying today's engines or the infrastructure that serves the airline industry."
On January 27, MPC’s board of directors declared a dividend of $0.75 per share on the common stock, scheduled to be paid to shareholders on March 10, 2023. This reflects its cash generation abilities.
In December 2022, MPC declared that six of its refineries and its San Antonio office building had received 2022 ENERGY STAR efficiency certifications from the U.S. Environmental Protection Agency (EPA). The EPA recognition might benefit the company.
The stock’s trailing-12-month ROTA of 16.18% is 130.7% higher than the industry average of 7.01%, while its trailing-12-month ROCE of 55.01% is 161.31% higher than the industry average of 21.05%. Also, its trailing-12-month ROTC of 20.21% is 136.9% higher than the industry average of 8.53%.
MPC’s total revenues and other income rose 12.6% year-over-year to $40.09 billion for the fiscal fourth quarter that ended December 31, 2022. Adjusted net income attributable to MPC increased 291.9% year-over-year to $3.11 billion, while its adjusted EPS grew 411.5% from the prior-year quarter to $6.65. MPC’s adjusted EBITDA came in at $5.80 billion, up 107.6% year-over-year.
For the fiscal first quarter (ending March 2023), analysts expect MPC’s EPS to increase 259.7% year-over-year to $5.21, while its revenue is expected to come in at $35.58 billion. In addition, it surpassed the EPS and revenue estimates in each of the trailing four quarters, which is impressive.
MPC’s shares have gained 29.3% over the past six months and 4.3% over the past month to close the last trading session at $120.74.
MPC’s POWR Ratings reflect this promising outlook. The company has an overall A rating, which translates to a Strong 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 Momentum and Quality and a B for Value and Growth. In the B-rated 91-stock Energy – Oil & Gas industry, MPC is ranked #3.
To see the additional POWR Ratings for Stability and Sentiment for MPC, click here.
Epsilon Energy Ltd. (EPSN)
EPSN acquires, develops, gathers, and produces oil and gas reserves in the United States. It operates through Upstream and Gathering System segments.
On December 5, 2022, EPSN announced that its board of directors had declared a dividend of $0.0625 per share of common stock (annualized $0.25 per share) paid to stockholders on December 30, 2022. This reflects its ability to pay back its shareholders.
On November 10, Jason Stabell, EPSN’s CEO, said, “We are poised for continued success in the current commodity price environment and are well-positioned to pursue attractive organic and inorganic growth opportunities.”
The stock’s trailing-12-month gross profit margin of 85.60% is 90.7% higher than the industry average of 44.88%. Its trailing-12-month EBIT margin of 67.45% is 249.5% higher than the industry average of 19.30%. Also, its trailing-12-month ROTC of 34.56% is 305.1% higher than the industry average of 8.53%.
EPSN’s total revenue came in at $21.24 million for the fiscal third quarter that ended September 30, 2022, up 62.2% year-over-year. Its net comprehensive income came in at $9.57 million, up 585.6% year-over-year, while its net income per share came in at $0.41, up 583.3% year-over-year. Also, its adjusted EBITDA stood at $16.54 million, up 143.7% year-over-year.
Over the past year, the stock has lost 1.6% to close the last trading session at $5.59.
It’s no surprise that EPSN has an overall A rating, which equates to a Strong Buy in our proprietary rating system.
In addition, it has an A grade for Momentum and Quality and a B for Value and Sentiment. EPSN is ranked #2 within the same industry.
Click here to get additional EPSN ratings (Growth and Stability).
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MPC shares were trading at $125.59 per share on Friday afternoon, up $4.85 (+4.02%). Year-to-date, MPC has gained 7.90%, versus a 6.19% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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