Robust demand for oil and gas, production dynamics, and geopolitical tensions project a potential surge in oil prices for the foreseeable future. To that end, let’s turn our attention to scrutinizing quality oil and gas stocks Enterprise Products Partners L.P. (EPD), Marathon Petroleum Corporation (MPC), and Global Partners LP (GLP), which are in focus this week. Read on….
Despite the transition to cleaner energy sources, rising global oil and gas demand, along with supply cuts and geopolitical turmoil, could instigate a significant price upswing, thereby stimulating the energy sector.
Against this backdrop, it could be wise to buy fundamentally strong oil and gas stocks Enterprise Products Partners L.P. (EPD), Marathon Petroleum Corporation (MPC), and Global Partners LP (GLP) now.
The shift toward renewable energy continues to pick up pace. However, global oil demand is rising. J.P. Morgan Research forecasts that by 2030, global oil demand could reach 106.9 mbd, an increase of 5.5 mbd from 2023. This is underpinned by population growth and heightened energy consumption in developing nations, overshadowing the energy efficiency measures put forth by developed economies.
Global petroleum consumption witnessed considerable growth over the past two years, which was primarily boosted by economic expansion and the revival of pre-pandemic travel trends, particularly international air travel. The U.S. Energy Information Administration forecasts the trend to continue with an increase of 1.4 million b/d in 2024 and 1.2 million b/d in 2025.
Additionally, the ongoing geopolitical conflicts in the Red Sea region, characterized by incessant attacks by Yemen-based Houthi insurgents, add a layer of complication to oil trading. Oil output disruption in Libya has further propelled a bullish environment for oil prices recently.
Chief Market Strategist at Blue Line Futures, Phillip Streible, observes oil as a crucial asset that serves as a buffer to geopolitical risks and inflation. He envisions a natural price floor followed by an oil price hike resulting from the continual geopolitical interruptions.
Moreover, in an unexpected turn of events, U.S. crude oil production has surpassed expectations, effectively neutralizing the increased price efforts spurred by OPEC+’s supply reduction strategies. Analysts predict this trend will continue throughout the year, driven by improved efficiency, increased spending, and production efforts by newly merged U.S. supermajors.
Rapid production growth has also contributed to a rise in exports of U.S. crude oil and petroleum products. Analysts speculate that the disruptions in Red Sea shipping might have paved the way for an upswing in U.S. petroleum exports. The rationale is that the buyers are seeking to acquire a cheaper oil supply from the U.S., given that U.S. benchmark crude prices trade at a discount compared to the global benchmark Brent crude.
Although oil prices have been hovering around the $80 per barrel mark for several weeks, some traders anticipate a rise to $110 a barrel in early spring. Bob Ryan, a commodity and energy strategist at BCA Research, expects Brent crude to ascend above $100 a barrel.
On the contrary, Morgan Stanley’s Chief Commodities Strategist, Martijn Rats, speculates a comparatively quiet year for oil. He forecasts that crude will maintain its current price around the $80 mark before slowly declining to approximately $75 per barrel in 2025. He assesses the risk of any disruption having a significant impact on oil prices as relatively low and the oil market is reasonably supplied.
With these trends in mind, let’s delve into the fundamentals of the three oil and gas stock picks.
Enterprise Products Partners L.P. (EPD)
EPD provides midstream energy services to producers and consumers of natural gas, natural gas liquids, crude oil, petrochemicals, and refined products. The company operates through four segments: NGL Pipelines & Services; Crude Oil Pipelines & Services; Natural Gas Pipelines & Services; and Petrochemical & Refined Products Services.
On January 8, EPD’s board of directors declared a quarterly cash distribution to be paid to EPD’s common unitholders with respect to the fourth quarter of 2023 of $0.52 per unit. The quarterly distribution is payable to common unitholders on February 14.
This distribution represents a 5.1% increase over the distribution declared for the fourth quarter of 2022 and a 3% increase over the distribution declared for the third quarter of 2023.
Its annualized dividend rate of $2.06 per share translates to a dividend yield of 7.66% on the current share price. Its four-year average yield is 8.07%. EPD’s dividend payments have grown at CAGRs of 3.6% and 2.9% over the past three and five years, respectively. The company has a record of paying dividends for 25 consecutive years, reflecting EPD’s shareholder payback abilities.
For the first nine months of 2023, EPD repurchased approximately 3.6 million of its common units on the open market for approximately $92 million. Including these purchases, the partnership has utilized 41% of its authorized $2 billion common unit buyback program.
Additionally, it repurchased $96 million of its common units in the open market during the fourth quarter of 2023 for a total of $187 million of common units repurchased in 2023. Inclusive of these purchases, the partnership has utilized 46% of its authorized $2 billion buyback program.
EPD’s trailing-12-month cash from operations of $7.93 billion is significantly higher than the industry average of $717.59 million, while its trailing-12-month asset turnover ratio of 0.71x is 28.2% higher than the industry average of 0.55x.
For the fiscal third quarter that ended September 30, 2023, EPD’s revenues and operating income stood at $12 billion and $1.70 billion, respectively. Moreover, its adjusted EBITDA increased 3.1% from the year-ago quarter to $2.33 billion.
For the same quarter, its net income attributable to common unitholders and earnings per common unit stood at $1.32 billion and $0.60, respectively. As of September 30, 2023, its total current assets stood at $11.43 billion, compared to $10.60 billion as of December 31, 2022.
Street expects EPD’s EPS for the fiscal fourth quarter of 2023 (ended December 2023) to increase 6.7% year-over-year to $0.69. Its revenue is expected to be $12.08 billion.
The stock has gained 6% over the past year to close the last trading session at $26.90. Over the past month, it has gained 2.2%.
EPD’s POWR Ratings reflect its positive prospects. The stock has an overall B rating, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has a B grade for Value, Momentum, and Stability. Within the A-rated MLPs – Oil & Gas industry, it is ranked #8 out of 26 stocks.
To see additional POWR Ratings for Growth, Sentiment, and Quality for EPD, click here.
Marathon Petroleum Corporation (MPC)
MPC operates as an integrated downstream energy company primarily in the United States. It operates in two segments: Refining & Marketing; and Midstream.
On December 11, 2023, MPC paid a quarterly dividend of $0.83 per share on common stock, an approximately 10% increase over its previous dividend. Its annualized dividend rate of $3.30 per share translates to a dividend yield of 2.14% on the current share price.
Its four-year average yield is 3.82%. MPC’s dividend payments have grown at CAGRs of 9.9% and 10.8% over the past three and five years, respectively.
Additionally, MPC’s board of directors approved an additional $5 billion share repurchase authorization. This authorization is in addition to its previous authorization, which had approximately $4.30 billion remaining as of September 30, 2023.
MPC’s trailing-12-month cash from operations of $17.38 billion is significantly higher than the industry average of $717.59 million. Its trailing-12-month ROCE, ROTC, and ROTA of 43.98%, 16.33%, and 12.84% are 120.6%, 75.6%, and 72.4% higher than the industry averages of 19.94%, 9.30%, and 7.45%, respectively.
For the fiscal third quarter that ended September 30, 2023, MPC’s total revenues and other income, and income from operations stood at $41.58 billion and $4.75 billion, respectively. Moreover, its adjusted income per share increased 4.2% from the year-ago quarter to $8.14.
For the same quarter, its adjusted net income attributable to MPC and adjusted EBITDA stood at $3.22 billion and $5.71 billion, respectively. As of September 30, 2023, its total current assets stood at $36.28 billion, compared to $35.24 billion as of December 31, 2022.
Street expects MPC’s revenue and EPS for the fiscal first quarter ending March 2024 to be $33.65 billion and $2.93, respectively. The company surpassed consensus EPS estimates in each of the trailing four quarters and consensus revenue estimates in three of the trailing four quarters, which is impressive.
The stock has gained 31.2% over the past year to close the last trading session at $152.84. Over the past six months, it has gained 29.7%.
MPC’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
MPC has an A grade for Quality. Within the Energy – Oil & Gas industry, it is ranked #9 out of 84 stocks.
Beyond what we’ve stated above, we have also rated the stock for Growth, Value, Momentum, Stability, and Sentiment. Get all ratings of MPC here.
Global Partners LP (GLP)
GLP purchases, sells, gathers, blends, stores, and transports gasoline and gasoline blendstocks, distillates, residual oil, renewable fuels, crude oil, and propane to wholesalers, retailers, and commercial customers. The company operates through Wholesale; Gasoline Distribution and Station Operations; and Commercial segments.
On January 3, GLP priced its previously announced private offering of $450 million in aggregate principal amount of 8.25% senior unsecured notes due 2032. The sale of the Senior Notes is expected to be completed on or about January 18, subject to customary closing conditions, and will be issued at par.
GLP intends to use the net proceeds from the offering of the Senior Notes to repay a portion of the borrowings outstanding under its credit agreement and for general corporate purposes.
On December 21, 2023, GLP acquired 25 liquid energy terminals from Motiva Enterprises LLC. The transaction is underpinned by a 25-year take-or-pay throughput agreement with Motiva, the anchor tenant at the terminals, that includes minimum annual revenue commitments.
Purchased for $305.80 million, the assets access a critical pipeline and marine network and significantly increase GLP’s operating footprint.
Its annualized dividend rate of $2.74 per share translates to a dividend yield of 6.51% on the current share price. Its four-year average yield is 11.17%. GLP’s dividend payments have grown at CAGRs of 12.2% and 7.2% over the past three and five years, respectively.
GLP’s trailing-12-month ROCE of 21.26% is 6.6% higher than the industry average of 19.94%, while its trailing-12-month asset turnover ratio of 5.48x is 895.9% higher than the industry average of 0.55x.
For the fiscal third quarter that ended September 30, 2023, GLP’s sales and gross profit stood at $4.22 billion and $228.52 million, respectively. Moreover, its adjusted EBITDA stood at $77.73 million.
For the same quarter, its net income attributable to common limited partners and net income per common limited partner unit stood at $20.54 million and $0.60, respectively. As of September 30, 2023, GLP’s total current liabilities stood at $916.58 million, compared to $971.48 million as of December 31, 2022.
Street expects GLP’s revenue and EPS for the fiscal first quarter ending March 2024 to increase 36.7% and 2.9% year-over-year to $5.51 billion and $0.72, respectively.
The stock has gained 39% over the past three months to close the last trading session at $41.95. Over the past six months, it has gained 38.5%.
GLP’s robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system.
GLP has a B grade for Value. It is ranked #10 within the MLPs – Oil & Gas industry.
Click here for the additional POWR Ratings for GLP (Growth, Momentum, Stability, Sentiment, and Quality).
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
EPD shares fell $26.90 (-100.00%) in premarket trading Thursday. Year-to-date, EPD has gained 2.09%, versus a 0.26% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi’s interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy.Having earned a master’s degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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