Following the OPEC+ decision to extend crude oil production cuts through 2024, crude oil prices are expected to increase. Therefore, quality energy stocks, TotalEnergies SE (TTE), North European Oil Royalty Trust (NRT), and Permianville Royalty Trust (PVL) might be ideal investments now.
At the OPEC+ meeting, Saudi Arabia said it would voluntarily cut its oil production by another 1 million barrels daily next month to prop up global oil prices. At the same time, the meeting unsurprisingly agreed to extend current production cuts of 3.66 million bpd until the end of this year and reduce combined production by another 1.4 million bpd from the start of 2024.
Furthermore, although developed nations have observed a slight decline in oil demand in the past few months due to warmer weather and sluggish industrial activity, the increasing demand from China and other non-OECD countries is expected to maintain a high overall demand level.
The International Energy Agency on June 14 raised its forecast of world oil demand growth this year by 200,000 b/d to 2.4 million b/d while forecasting oil demand for transportation to peak in 2026 and an overall peak in oil demand by the end of the decade.
Let’s discuss the featured stocks in detail:
TotalEnergies SE (TTE)
Headquartered in Courbevoie, France, TTE is a multi-energy company that produces and markets fuels, natural gas, and electricity in France, the rest of Europe, North America, Africa, and internationally. It operates through Integrated Gas, Renewables & Power; Exploration & Production; Refining & Chemicals; and Marketing & Services segments.
On June 26, 2023, TTE announced the signature of a Strategic Collaboration Agreement with Gentari Renewables Sdn Bhd, the clean energy solutions company of Petronas, to develop renewable energy projects in the Asia Pacific region. Already collaborating in the upstream sector in 8 countries worldwide, this agreement further strengthens TTE’s partnership with Petronas in the energy transition.
On the same day, TTE announced signing an agreement with Petronas and Mitsui to develop a carbon storage project in Southeast Asia. The partners will evaluate several CO2 storage sites in the Malay Basin, including both saline aquifers and depleted offshore fields. This partnership aims to develop a CO2 merchant storage service to decarbonize industrial customers in Asia.
On May 31, TTE announced a quarterly dividend of $0.79, payable on July 17, 2023. TTE pays $2.85 annually as dividends, which translates to a yield of 5.52% at the current price level. Its four-year average dividend yield is 6.59%.
TTE’s forward EV/Sales of 0.78x is 58.5% lower than the industry average of 1.89x. Its forward P/S multiple of 0.65 is 46.7% lower than the industry average of 1.22.
TTE’s sales came in at $62.60 billion in the fiscal first quarter that ended March 31, 2023. Net income increased 12.4% year-over-year to $5.56 billion. Adjusted EBITDA came in at $14.17 billion, and adjusted earnings per share came in at $2.61.
Analysts expect TTE’s revenue to be $54.24 billion for the fiscal second quarter ending June 2023. Its EPS is expected to be $2.41 for the same quarter.
The stock has gained 26.8% over the past nine months to close the last trading session at $56.73.
TTE’s POWR Ratings reflect its 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.
TTE has an A grade for Momentum and a B in Stability. It is ranked #7 out of 92 stocks in the Energy - Oil & Gas industry.
To access TTE’s additional POWR Ratings for Growth, Value, Quality, and Sentiment, click here.
North European Oil Royalty Trust (NRT)
NRT is a grantor trust that holds overriding royalty rights covering gas and oil production in various concessions or leases in the Federal Republic of Germany. The company has rights under contracts with German exploration and development subsidiaries of ExxonMobil Corp. and the Royal Dutch/Shell Group of Companies.
On April 28, NRT announced a quarterly dividend distribution of $1.05 per unit for the second quarter of the fiscal year 2023. Its annualized dividend of $4.20 per share yields 32.61% on the prevailing price.
NRT’s four-year average dividend yield is 11.12%. The company’s dividend payouts have grown at CAGRs of 78.7% and 33% over the past three and five years, respectively.
NRT’s trailing-12-months EV/EBIT of 3.60x is 47.7% lower than the industry average of 6.88x. Its trailing-12-month P/E multiple of 3.92 is 44% lower than the industry average of 7.
During the fiscal second quarter that ended April 30, 2023, NRT’s total royalty income stood at $9.76 million, up 158.6% year-over-year, while its net income and net income per unit grew 167% and 164.1% from the prior-year quarter to $9.50 million and $1.03, respectively.
Over the past three months, the stock has gained 18.2% to close the last trading session at $13.10.
NRT’s POWR Ratings reflect its positive outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
In addition, NRT has an A grade for Quality and a B for Growth and Momentum. It is ranked #5 within the same industry.
Click here for additional NRT ratings (Value, Sentiment, and Stability).
Permianville Royalty Trust (PVL)
PVL operates as a statutory trust. It acquires and holds net profits interest representing the right to receive 80% of the net profits from the sale of oil and natural gas production from properties in Texas, Louisiana, and New Mexico.
On June 16, PVL announced a quarterly dividend of $0.01, payable on July 14, 2023. PVL pays a $0.15 per share dividend annually, translating to a 5.88% yield on the current share price. Its four-year average dividend yield is 12.78%. The company’s dividend payouts have grown at CAGRs of 12.7% over the past three years.
PVL’s trailing-12-months EV/EBIT of 5.33x is 22.6% lower than the industry average of 6.88x. Its trailing-12-month P/E multiple of 5.63 is 19.5% lower than the industry average of 7.
For the fiscal year that ended December 31, 2022, PVL’s total gross profits stood at $62.15 million, up 43% year-over-year, while its distributable income rose 332.3% from the prior-year quarter to $13.48 million. Its cash and cash equivalents for the period stood at $922.91 thousand compared to $67.12 thousand as of December 31, 2021.
The stock has gained 9.2% over the past three months to close its last trading session at $2.50.
PVL’s strong fundamentals are reflected in its POWR Ratings system. The stock has an overall B rating, equating to Buy in our proprietary rating system.
PVL has a grade of B for Momentum and Quality. It ranks #8 within the same industry.
For additional POWR Ratings for PVL (Value, Growth, Sentiment, and Stability), click here.
What To Do Next?
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TTE shares fell $0.17 (-0.30%) in premarket trading Wednesday. Year-to-date, TTE has declined -7.07%, versus a 14.67% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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