The energy sector is expected to remain robust amid solid demand and the emergence of new oil and gas ventures. Hence, I think fundamentally strong Energy Transfer (ET), Valero Energy (VLO), and World Fuel Services (INT) could be ideal additions to your watchlist. Keep reading.
U.S. crude oil exports, already reaching impressive levels close to a record high in March, are poised to receive a significant boost next month. This surge is expected to be driven by substantial production cuts implemented by Saudi Arabia, which will also result in a further decline in U.S. crude inventories lingering near historic lows.
I think quality energy stocks Energy Transfer LP (ET), Valero Energy Corporation (VLO), and World Fuel Services Corporation (INT) might be poised to capitalize on industry tailwinds. So, these stocks might be ideal additions to your watchlist.
As per Forbes, U.S. oil production is on track to potentially set a new annual record this year, despite uncertainties. Monthly production figures for the first quarter of the year indicate a significant increase, surpassing the previous record set in 2019.
Additionally, the emergence of new oil and gas ventures in critical regions such as the Asia Pacific, the Middle East, and others is further fueling the demand for oilfield services.
According to a recent report by Consegic Business Intelligence, the global oilfield services market is expected to reach a value of $468.58 billion by 2030, expanding at a robust CAGR of 5.9%.
Furthermore, according to the International Energy Agency’s (IEA) recent Oil Market Report, global oil demand is projected to average 102 million barrels per day (mb/d) in 2023. This represents an increase of 1.3 mb/d compared to the demand levels seen in 2019.
Let us now discuss the stocks as mentioned earlier:
Energy Transfer LP (ET)
ET provides energy-related services and owns and operates one of the largest and most diversified portfolios of energy assets in the United States, with approximately 120,000 miles of pipeline and associated energy infrastructure.
ET’s trailing-12-month cash from operations of $10.03 billion is significantly higher than the $634.20 million industry average. Its trailing-12-month asset turnover ratio of 0.83x is 26.6% higher than the 0.65x industry average.
During the fiscal first quarter, ET completed the optimization project on Oasis Pipeline, adding more than 60,000 Mcf/d of natural gas takeaway capacity out of the Permian Basin. This expanded capacity allows ET to transport and deliver a greater volume of natural gas from the prolific Permian Basin, which is a major oil and gas producing region in the United States.
The company pays an annual dividend of $1.23, which translates to a 9.55% yield on the current share price. Its four-year dividend yield is 10.34%.
ET’s revenue amounted to $19 billion for the fiscal first quarter that ended March 31, 2023. Its operating income rose 11.7% year-over-year to $2.06 billion. The company’s adjusted EBITDA grew 2.8% year-over-year to $3.43 billion. Its net income attributable to partners came in at $1.11 billion, while net income per unit came in at $0.32.
The consensus EPS estimate of $0.30 for the fiscal third quarter ending September 2023 reflects a 5.1% year-over-year. Shares of ET have gained 8.6% year-to-date and 3.5% over the past month to close the last trading session at $12.89.
ET’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has a B grade for Value and Momentum. The stock ranks #12 in the 93-stock Energy – Oil & Gas industry.
In addition to the above-mentioned POWR Ratings, one can access ET’s additional ratings for Growth, Stability, Sentiment, and Quality here.
Valero Energy Corporation (VLO)
VLO manufactures and markets petroleum-based and low-carbon liquid transportation fuels and petrochemical products. The company operates in three segments: Refining; Renewable Diesel; and Ethanol.
VLO’s trailing-12-month cash from operations of $15.16 billion is significantly higher than the industry average of $634.20 million. Its trailing-12-month asset turnover ratio of 2.80x is 329.2% higher than the 0.65x industry average.
On May 9, VLO declared a regular quarterly cash dividend of $1.02 per share on common stock, payable on June 22, 2023.
The company pays an annual dividend of $4.08 per share, which yields 3.80% on the prevailing price level. Its dividend has grown at a 2.1% CAGR over the past three years and a 5.9% CAGR over the past five years.
VLO reported revenues of $36.44 billion in the fiscal 2023 first quarter (ended March 31, 2022). Its operating income improved 192.1% year-over-year to $4.04 billion. Adjusted net income attributable to VLO shareholders came in at $3.10 billion, up 228.4% year-over-year and its adjusted earnings per share grew 250% from the previous-year quarter to $8.27.
Street expects VLO’s EPS and revenue to amount to $5.31 and $37.21 billion in the fiscal second quarter ending June 2023. Moreover, the company surpassed the EPS estimates in each of the trailing four quarters, which is impressive.
The stock has gained marginally over the past five days to close the last trading session at $107.39.
VLO’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It has an A grade for Quality and a B for Value. In the same industry, it is ranked #5.
Click here to see VLO’s additional ratings for Stability, Sentiment, Momentum, and Growth.
World Fuel Services Corporation (INT)
INT distributes fuel and related products and services in the aviation, marine, and land transportation industries worldwide.
INT’s trailing-12-month asset turnover ratio of 7.65x is remarkably higher than the 0.65x industry average. Its trailing-12-month cash per share of $3.49 is 347.7% higher than the industry average of $0.78.
On May 22, 2023, INT entered into a significant agreement with Neste, a leading energy company that creates solutions for combating climate change and accelerating a shift to a circular economy, for Sustainable Aviation Fuel (SAF), deepening their already strong partnership.
The deal aims to address the scarcity of SAF for European commercial, business, and general aviation customers by granting World Fuel greater access to this environmentally friendly fuel source.
By expanding the availability of renewable fuels such as SAF on a global scale, INT is actively advancing its mission to support customers and partners in reducing their carbon footprint and embracing sustainable practices.
INT’s revenue for the fiscal first quarter that ended March 31, 2023, increased marginally year-over-year to $12.48 billion. Its gross profit rose 13.8% year-over-year to $262.70 million and income from operation rose 56.4% over the prior-year quarter to $64.60 million.
Moreover, the company’s adjusted net income amounted to $22.80 million or $0.36 per share.
INT’s EPS for the fiscal second quarter ending June 2023, is expected to increase 20.7% year-over-year to $0.50. The company is expected to report revenue of $13.23 billion in the same quarter. The company has an excellent earnings surprise history, as it surpassed the consensus EPS estimates in each of the trailing four quarters.
The stock has gained 2.9% over the past month to close the last trading session at $23.84.
The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
In addition, the stock has an A grade for Value and a B for Growth and Sentiment. It is ranked #11 in the same industry.
Beyond what we have highlighted above, we have also given INT grades for Momentum, Stability, and Quality. Get all the INT ratings here.
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ET shares were trading at $12.94 per share on Tuesday morning, up $0.05 (+0.39%). Year-to-date, ET has gained 14.37%, versus a 12.22% 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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