Concerns over a global economic slowdown amid rising borrowing costs and the Russia-Ukraine war have created immense volatility in the energy sector and significantly pulled down prices from their summer highs. Moreover, a crackdown on COVID-19 cases in China also exacerbated declining oil & gas demand.
However, a tight supply is likely to keep prices stable going forward. According to the latest forecast by the U.S. EIA, retail gas prices are expected to remain “relatively flat” in 2023. The agency projects a gallon of gas will cost approximately $3.60 in February 2023.
The European Union ban on Russian crude disrupted the supply of U.S. shale production, and various other factors are expected to squeeze supply. Goldman Sachs’ head of commodities research projects crude oil prices to rise to $115 per barrel by April 2023.
Given the backdrop, investors could buy oil and gas stocks, Valero Energy Corporation (VLO) and Adams Resources & Energy, Inc. (AE), which have gained significant momentum and could soar higher in the near term.
Valero Energy Corporation (VLO)
VLO, an energy company, is involved in manufacturing, marketing, and selling transportation fuels and petrochemical products in domestic and international markets. The company operates in three segments: Refining; Renewable Diesel; and Ethanol. Its offerings include conventional, premium, reformulated gasoline; California Air Resources Board (CARB) gasoline and diesel; and other refined petroleum products.
On October 26, VLO declared a regular quarterly dividend of $0.98 per share, payable on December 8, 2022. The company pays $3.92 annually as dividends, which translates to a yield of 3.30% at the current price. Its dividend payouts have increased at 7% CAGR over the past five years.
On September 26, VLO announced that it had reduced its debt by approximately $1.25 billion through its previously announced tender offers for various series of VLO’s senior notes. This transaction, combined with debt reduction and refinancing transactions completed in the second half of 2021 and the first half of 2022, collectively reduced the company’s debt by approximately $3.6 billion.
VLO’s revenues increased 50.6% year-over-year to $44.45 billion in the fiscal 2022 third quarter ended September 30, 2022. During the same period, the company’s operating income improved 447.2% year-over-year to $3.79 billion, while its adjusted net income amounted to 2.8 billion, up 413.8% year-over-year. The company’s adjusted earnings per share came in at $7.14, registering an increase of 436.8% from the prior-year period.
The consensus EPS estimate of $27.69 for the fiscal year 2022 represents an 885.5% improvement year-over-year. The consensus revenue estimate of $176.68 billion for the current year represents a 55% increase from the previous year. The company has an impressive earnings surprise history, as it has surpassed the consensus EPS estimates in each of the trailing four quarters.
VLO has gained 68.8% over the past year and 58.3% year-to-date to close the last trading session at $119.20. The stock is trading above its 200-day moving average of $113.69.
VLO’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, 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 is rated A for Momentum and B for Growth, Value, and Quality. VLO is ranked #9 of 92 stocks within the B-rated Energy – Oil & Gas industry.
Click here to see additional POWR Ratings for Sentiment and Stability for VLO.
Adams Resources & Energy, Inc. (AE)
AE, an energy company, is involved in marketing, transporting, terminalling, and storing various crude oil and natural gas basins in the United States. The company operates through three segments: Crude Oil Marketing, Transportation, and Storage; Tank truck Transportation of Liquid Chemicals, Pressurized Gasses, Asphalt, and Dry Bulk; and Pipeline Transportation, Terminalling, and Storage of Crude Oil.
AE’s $0.96 annual dividend yields 2.49% at its current share price. The company has a four-year average dividend yield of 3.20%. Additionally, on November 10, AE declared a quarterly cash dividend of $0.24 per common share.
On November 1, the company announced a repurchase of all its shares owned by KSA Industries, Inc., AE’s largest stockholder. With this transaction, AE made a significant return of capital to its existing shareholders and increased the intrinsic value of their stake in the company.
For the fiscal 2022 third quarter ended September 30, AE’s total revenues increased 50.1% year-over-year to $852.90 million. The company’s operating earnings rose 30.1% from the year-ago value to $2.99 million. In addition, its adjusted net earnings came in at $4.71 million or $1.06 per share, up 168.6% and 158.5% year-over-year, respectively.
Analysts expect AE’s revenue for the fiscal year 2022 to come in at $3.46 billion. Also, the company’s EPS for the current year is expected to come in at $3.37, representing an increase of 22.6% year-over-year.
AE’s stock has gained 42.3% over the past year and 38.6% year-to-date to close the last trading session at $38.53. It is currently trading above its 50-day and 200-day moving averages of $34.75 and $33.99, respectively.
AE’s POWR Ratings reflect a strong outlook. The stock has an overall rating of A which translates to a Strong Buy in our proprietary rating system.
It also has an A grade for Momentum and Sentiment and a B for Quality and Value. AE is ranked #4 in the same industry.
Get additional ratings for AE for Growth and Stability here.
VLO shares were trading at $119.20 per share on Wednesday afternoon, up $0.34 (+0.29%). Year-to-date, VLO has gained 64.39%, versus a -16.11% rise in the benchmark S&P 500 index during the same period.
About the Author: Komal Bhattar
Komal's passion for the stock market and financial analysis led her to pursue investment research as a career. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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