Despite oil prices receding from the summer highs, the potential increase in demand and supply constraints could lead to a solid recovery next year. Moreover, underinvestment in new oil supply might lead to structurally higher prices.
Eric Nuttall, the partner and senior portfolio manager at Ninepoint Partners LP, sees oil prices returning to $100 per barrel in 2023, as headwinds such as China’s restrictive COVID policy and coordinated SPR releases are expected to be there no longer.
Unit Corporation (UNTC) explores, acquires, produces, and develops oil and natural gas properties in the United States. The company operates through three broad segments — Oil and Natural Gas; Contract Drilling; and Mid-Stream.
The stock has gained 83.9% over the past year and 76.8% year-to-date to close its last trading session at $57.09. It is trading about 92% higher than its 52-week low of $29.75. However, the stock is trading below its 50-day moving average of $ 57.12 and a 200-day moving average of $57.22.
Here are the factors that could influence UNTC’s performance in the near term:
Solid Financial Growth
For the fiscal third quarter that ended September 30, UNTC’s oil and natural gas revenues increased 51.3% year-over-year to $80.03 million. Income from operations rose 39% from the prior-year quarter to $66.26 million.
Net income attributable to UNTC and net income attributable to UNTC per common share came in at $55.82 million and $5.60, up 786.7% and 918.2% from the same period last year, respectively.
Discounted Valuation
In terms of its trailing-12-month P/E, UNTC is trading at 3.54x, 55% lower than the industry average of 7.86x. The stock’s trailing-12-month EV/EBIT multiple of 2.02 is 77.1% lower than the industry average of 8.85. In terms of trailing-12-month EV/Sales, it is trading at 0.58x, 68.6% lower than the industry average of 1.86x.
Robust Profitability
UNTC’s trailing-12-month net income margin and levered FCF margin of 23.85% and 10.81% are 109.6% and 61.3% higher than the industry averages of 11.38% and 6.70%, respectively.
Its trailing-12-month ROCE, ROTC, and ROTA of 69.92%, 34.04%, and 36.09% are 238.1%, 311.1%, and 424.2% higher than the respective industry averages of 20.68%, 8.28%, and 6.88%.
POWR Ratings Reflect Promising Prospects
UNTC’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by 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. UNTC has a Momentum grade of A, in sync with the stock’s uptrend this year.
The stock also has an A grade for Value and Quality, consistent with its lower-than-industry valuation multiples and robust profitability.
In the 93-stock Energy – Oil & Gas industry, UNTC is ranked #4. The industry is rated B.
Click here to see the additional POWR Ratings for UNTC (Growth, Stability, and Sentiment).
View all the top stocks in the Energy – Oil & Gas industry here.
Bottom Line
This year, UNTC has gained significantly despite macroeconomic turmoil and stands to benefit from the current oil market dynamics. Moreover, the company’s bottom-line growth in the third quarter is impressive. Given its solid profitability scenario and cheap valuation, this stock might be a solid buy now.
How Does Unit Corporation (UNTC) Stack up Against Its Peers?
While UNTC has an overall POWR Rating of A, one might consider looking at its industry peers, PrimeEnergy Resources Corporation (PNRG) and Berry Corporation (BRY), which also have an overall A (Strong Buy) rating.
UNTC shares were trading at $58.25 per share on Friday morning, up $1.16 (+2.03%). Year-to-date, UNTC has gained 80.34%, versus a -18.42% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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