Amid ongoing macroeconomic headwinds, the stock market is expected to remain volatile. Aiming to increase the likelihood of successful investing, StockNews.com has developed the POWR Ratings, one of the most complete stock ratings systems available to investors today.
The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree. In this article, I will discuss the prospects of quality energy stock CrossAmerica Partners LP (CAPL), which has an overall rating of A in our POWR Ratings system.
Oil prices surged after OPEC and its allies unexpectedly announced on Sunday that it would start cutting crude production by more than 1 million barrels a day starting in May. Following the announcement, the S&P 500’s Energy index had its most impressive performance in six months yesterday.
CAPL reported solid fourth quarter and fiscal year 2022 results, beating both consensus revenue and EPS estimates. Its wholesale fuel margin benefited from the execution of strategic initiatives and higher variable margins.
The energy company has effectively grown its business and generated higher profits. CAPL’s revenue and EPS have increased at CAGRs of 31.4% and 47.4% over the past three years. During the same period, the company also registered EBIT and net income growth of 41.9% and 52.2% CAGRs, respectively.
The company offers reliable dividends. In January, CAPL’s general partner approved a quarterly distribution of $0.5250 per unit attributable to the fourth quarter of 2022 (annualized $2.10 per unit).
Its annual dividend yields 9.77% on the current share price. The company has a four-year average yield of 11.9%.
CAPL completed its acquisition of certain assets of Community Service Stations for $27.5 million plus working capital in November last year. The assets include wholesale fuel supply contracts to 38 dealer-owned locations, 35 sub-jobber accounts, and two commission locations, which collectively supply approximately 75 million gallons of fuel annually through various fuel brands.
The acquisition was funded with cash on hand and undrawn capacity under its revolving credit facility and is expected to be immediately beneficial to distributable cash flow to limited partners.
The stock has gained 15% over the past six months and 8.4% over the past three months to close its last trading session at $21.57.
Here are the factors that could influence CAPL’s performance in the near term:
Solid Financials
During the fiscal fourth quarter that ended December 31, 2022, CAPL’s operating revenues increased 4.4% year-over-year to $1.12 billion. Its gross profit rose 14.8% year-over-year to $93.27 million. The company’s net income available to partners increased 37.7% year-over-year to $16.50 million.
In addition, its adjusted EBITDA increased 19.7% year-over-year to $44.28 million, while its EPS came in at $0.43, representing a 34.4% increase from the prior-year quarter.
Discounted Valuation
In terms of forward P/E, CAPL’s 24.15x is 50.9% lower than its five-year average of 49.17x. Its 10.99x forward EV/EBITDA is 2.9% lower than the five-year average of 11.32.
In addition, its forward EV/Sales and P/S multiple of 0.39 and 0.18 are 26.6% and 27.7% lower than the five-year averages of 0.53 and 0.25.
Impressive Profitability
CAPL’s trailing-12-month levered FCF margin of 2.45% is 22.4% higher than its five-year average of 2%. Its trailing-12-month EBIT margin of 2.11% is 19.4% higher than its five-year average of 1.77%
Its ROCE, ROTC, and ROTA of 113.15%, 5.97%, and 5.08% are 159.4%, 78.1%, and 26.5% higher than their respective five-year averages of 43.62%, 3.35%, and 3.98%.
POWR Ratings Reflect Promising Prospects
CAPL’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.
Our proprietary rating system also evaluates each stock based on eight distinct categories. The stock has an A grade for Momentum, in sync with its steady price performance over the past months.
It also has a B grade for Stability, consistent with its 24-month beta of 0.48.
In the 31-stock MLPs – Oil & Gas industry, it is ranked first. The industry is rated an A.
Click here to see the additional POWR Ratings for CAPL (Growth, Value, Quality, and Sentiment).
Bottom Line
CAPL is currently trading above its 50-day and 200-day moving averages of $21.41 and $20.52, respectively, indicating an uptrend.
Moreover, the company has consistently grown its revenues and earnings over the past years and pays reliable dividends.
Additionally, considering the solid prospects of the energy industry, this top-rated stock might be a solid buy.
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CAPL shares were unchanged in premarket trading Tuesday. Year-to-date, CAPL has gained 11.35%, versus a 7.87% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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