The tight energy supply worldwide amid fears of an economic slowdown due to the Fed’s interest rate hikes, falling crude inventories, and a weakening dollar have been driving immense volatility in oil prices. On the other hand, heatwaves in the United States and Europe have led to surging demand for natural gas amid the supply shortage.
However, the oil market is expected to remain strong since efforts are being taken to improve supply. Therefore, prominent energy stocks TETRA Technologies, Inc. (TTI) and NOW Inc. (DNOW) should benefit.
TTI is a diversified oil and gas services company that operates through Completion Fluids & Products Division and Water & Flowback Services segments. It provides completion fluids and associated products and services, water management solutions, frac flow back, and production well testing.
On the other hand, DNOW distributes downstream energy and industrial products for petroleum refining, chemical processing, LNG terminals, power generation utilities, and industrial manufacturing operations internationally. It serves customers in the upstream, midstream, and downstream segments.
Investors’ interest in this space is evident from the SPDR S&P Oil & Gas Equipment & Services ETF’s (XES) 10.7% gains over the past week versus the SPDR S&P 500 Trust ETF’s (SPY) 3.8% returns. The oilfield services market is expected to grow at a 3.4% CAGR to reach $125.51 billion by 2031.
While DNOW gained 7.2% over the past week, TTI surged 12.1%. TTI is a clear winner with 15.6% gains over the past nine months versus DNOW’s 10.7% returns. But which of the stocks is a better buy now? Let’s find out.
Recent Financial Results
For the fiscal 2022 first quarter ended March 31, 2022, TTI’s total revenues increased 68.2% year-over-year to $130.04 billion. The company’s gross profit came in at $32.42 billion, representing a 312% year-over-year improvement. Its adjusted operating income came in at $7.17 billion, compared to a loss of $5.32 billion in the year-ago period.
Its net income came in at $7.72 billion, down 92.9% from the prior-year period. TTI’s adjusted EPS came in at $0.06 versus a $0.04 loss per share in the prior-year period. As of March 31, 2022, the company had $32.85 million in cash and cash equivalents.
For its fiscal 2022 first quarter ended March 31, 2022, DNOW’s revenue increased 31% year-over-year to $473 million. The company’s operating profit came in at $23 million, versus a loss of $8 million in the prior-year period.
Its net income came in at $30 million, compared to a loss of $10 million in the prior-year period. DNOW’s EPS came in at $0.27, versus a $0.09 loss per share in the year-ago period. As of March 31, 2022, the company had $293 million in cash and equivalents.
Past and Expected Financial Performance
Over the past three years, TTI’s tangible book value has increased at a CAGR of 6.3%. Analysts expect TTI’s EPS to grow 400% in the fiscal 2022 third quarter ending September 30, 2022, and its revenue is expected to grow 36.6% year-over-year in the same period.
Over the past three years, DNOW’s tangible book value has declined at 5.2% CAGR. DNOW’s EPS is expected to increase 240% year-over-year in the fiscal 2022 third quarter ending September 30, 2022, and its revenue is expected to grow 16% year-over-year in the same period.
Valuation
In terms of forward EV/Sales, TTI is currently trading at 1.29x, 193.2% higher than DNOW’s 0.44x. In terms of non-GAAP forward P/E, TTI’s 18.55x compares with DNOW’s 15.68x.
Profitability
DNOW’s trailing-12-month revenue is four times that of TTI’s. Also, DNOW is more profitable, with a 2.6% net income margin versus TTI’s 0.5%.
Furthermore, DNOW’s ROE, ROA and ROTC of 6.3%, 2.5% and 3.6% compare with TTI’s 2.7%, 0.5% and 0.6%, respectively.
POWR Ratings
While DNOW has an overall B grade, which translates to Buy in our proprietary POWR Ratings system, TTI has an overall C grade, equating to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.
DNOW has a B grade for Momentum, reflecting its impressive price gains over the past year. DNOW has gained 16% over the past year. TTI’s C grade for Momentum is in sync with its 4% price decline over the past month.
Of the 46 stocks in the C-rated Energy - Services industry, DNOW is ranked #2, while TTI is ranked #16.
Beyond what we have stated above, our POWR Ratings system has graded TTI and DNOW for Stability, Growth, Sentiment, Value, and Quality. Get all TTI ratings here. Also, click here to see the additional POWR Ratings for DNOW.
The Winner
Despite the volatility in the energy market, efforts to improve supply should benefit TTI and DNOW. However, higher profitability and lower valuation make DNOW a better buy here.
Our research shows that the odds of success increase if one invests in stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Energy - Services industry.
TTI shares were trading at $4.09 per share on Wednesday afternoon, up $0.01 (+0.25%). Year-to-date, TTI has gained 44.01%, versus a -16.27% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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