Supply cuts by major oil-producing nations have emerged as a key driver of heightened global oil demand and, thus, subsequently pushing oil prices upward. In such a scenario, three fundamentally sound energy stocks, ChampionX Corporation (CHX), REX American Resources Corporation (REX), and Ranger Energy Services, Inc. (RNGR), could be solid portfolio additions to capitalize on the industry tailwinds.
Saudi Arabia recently extended its voluntary oil production reduction of 1 million barrels per day until the end of the year to secure higher oil prices. On the other hand, Russia has also pledged to decrease its oil exports by 300,000 barrels per day until December 2023.
International Energy Agency (IEA), in its latest monthly report, predicted world oil demand to grow by 2.2 million per barrel per day in 2023, reaching a total of 101.8 million barrels per day, driven by a resurgence in Chinese consumption, as well as increased demand for jet fuel and petrochemical feedstocks.
Additionally, given the OPEC+ oil supply reductions led by Saudi Arabia, the IEA anticipates oil prices to experience increased volatility in the fourth quarter of 2023, attributed to an expected “significant supply shortfall” in the market.
Moreover, in certain regions, oil inventories are starting to decline as demand outpaces supply, primarily caused by significant production cuts by Saudi Arabia. This scenario is offering support to oil prices, which are anticipated to continue to rise in the upcoming months.
Furthermore, the global oilfield services market is set to grow in the coming years, driven by the rising offshore rig count and increased investments from major oil and gas companies.
The offshore sector, in particular, is expected to expand due to developments in existing offshore wells, deeper-sea drilling investments, and the growth of subsea oil and gas assets. Consequently, the global oilfield services market is projected to reach $427.60 billion by 2028, with a 6.5% CAGR.
Given the industry dynamics, let us delve deeper into the fundamentals of the three Energy – Services stocks, beginning with number three.
Stock #3: ChampionX Corporation (CHX)
CHX provides chemistry solutions, engineered equipment, and technologies worldwide to oil and gas companies. The company operates through four segments: Production Chemical Technologies; Production & Automation Technologies; Drilling Technologies; and Reservoir Chemical Technologies.
On August 30, CHX declared a quarterly dividend of $0.085 per share on the company’s common stock, payable to its shareholders on October 27, 2023. Its four-year average yield is 0.30%, while its annual dividend translates to a 0.91% yield on current prices.
On April 26, CHX announced that its operations in Norway received the esteemed 2022 Supplier Recognition Award - Focus on Execution from ConocoPhillips. This recognition highlights CHX’s outstanding asset integrity program implemented in the Greater Ekofisk Area of Norway.
CHX’s trailing-12-month levered FCF margin of 14.80% is 127.2% higher than the 6.52% industry average. Its trailing-12-month asset turnover ratio of 1.14x is 87.4% higher than the industry average of 0.61x. Likewise, the stock’s trailing-12-month cash per share of $1.24 is 100.4% higher than the $0.67 industry average.
During the second quarter that ended June 30, 2023, CHX’s revenues amounted to $926.60 million, while its gross profit increased 33.2% year-over-year to $282.21 million.
The company’s net income improved by 234.4% year-over-year to $96.63 million. While its adjusted EPS came in at $0.49, representing a 75% increase from the prior-year quarter. Also, its adjusted EBITDA stood at $186.24 million, up 34.7% year-over-year.
The consensus revenue estimate of $1.02 billion for the fiscal fourth quarter (ending December 2023) represents a 3.1% increase year-over-year. The consensus EPS estimate of $0.53 for the same quarter indicates a 24.4% improvement year-over-year. The company has an excellent earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
Its revenue has grown at 53% and 28.4% CAGRs over the past three and five years, respectively. Also, its EBITDA increased at a 92.1% CAGR over the past three years.
Over the past year, CHX’s shares have surged 70.4% to close the last trading session at $37.25.
CHX’s POWR Ratings reflect this robust outlook. The stock has an overall B rating, translating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Momentum and a B for Growth and Quality. In the 47-stock Energy - Services industry, it is ranked #10. Click here to see CHX ratings for Value, Stability, and Sentiment.
Stock #2: REX American Resources Corporation (REX)
REX produces and sells ethanol in the United States. The company also offers corn, distillers grains, non-food grade corn oil, gasoline, and natural gas. In addition, it provides dry distillers grains with soluble, which is used as a protein in animal feed.
REX’s trailing-12-month asset turnover ratio of 1.47x is 140.4% higher than the 0.61x industry average. Furthermore, its trailing-12-month cash per share of $5.84 is 772.6% higher than the industry average of $0.67.
REX’s net sales and revenue for the fiscal second quarter (ended July 31, 2023) amounted to $211.98 million, while its gross profit rose 49.4% from the prior-year quarter to $18.35 million.
During the same period, the company’s net income came in at $12.28 million and $0.52 per share, respectively. In addition, its cash and cash equivalents stood at $102.17 million, increasing 46.8% compared to $69.61 million as of January 31, 2023.
Street expects REX’s EPS for the current quarter (ending October 2023) to increase 377.8% year-over-year to $0.86. While its revenue for the same period is expected to be $198 million. Moreover, the company topped its EPS and revenue estimates in three of the trailing four quarters, which is promising.
Additionally, REX’s revenue has grown at CAGRs of 36.8% and 11.9% over the past three and five years, respectively. While its total assets have improved at a CAGR of 7.9% over the past three years.
REX’s shares have gained 39.6% over the past year and 30.9% over the past nine months to close the last trading session at $39.19.
REX’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 a B grade for Stability, Sentiment, and Quality. Within the same industry, it is ranked #7. Click here to see the other ratings of REX for Growth, Value, and Momentum.
Stock #1: Ranger Energy Services, Inc. (RNGR)
RNGR provides onshore high-specification well service rigs, wireline completion services, and complementary services to exploration and production companies in the United States. It operates through three segments: High Specification Rigs; Wireline Services; and Processing Solutions and Ancillary Services.
On June 26, RNGR was selected to join the broad-market Russell 3000®Index. FTSE Russell uses market-capitalization rankings and style attributes to determine Russell index membership. Investors widely utilize these indexes for benchmarking and index funds. Inclusion in the U.S. all-cap Russell 3000® Index, lasting a year, also results in automatic entry into the small-cap Russell 2000® Index and relevant growth and value style indexes.
Commenting on this, Stuart Bodden, RNGR’s Chief Executive Officer, said, “As the largest provider of well service rigs in the onshore U.S., this milestone signifies our growth and industry leadership. Joining the index will amplify our visibility, attracting new investors and fueling future growth opportunities.”
The stock’s trailing-12-month levered FCF margin of 6.66% is 2.2% higher than the 6.52% industry average. Also, its trailing-12-month asset turnover ratio of 1.74x is 184.9% higher than the 0.61x industry average. In addition, its trailing-12-month ROTA of 9.18% is 13.9% higher than the 8.06% industry average.
In the fiscal second quarter, which ended on June 30, 2023, RNGR’s total revenue increased 6.3% year-over-year to $163.20 million, while its operating income amounted to $11.40 million versus an operating loss of $2.20 million in the prior-year quarter.
Also, the company’s net income and EPS stood at $6.10 million and $0.24, compared to a net loss and loss per share of $400 thousand and $0.02 in the same period last year, respectively. Moreover, its cash and cash equivalents came in at $6.40 million, up 72.9% compared to $3.70 million as of December 31, 2022.
Analysts expect RNGR’s revenue and EPS for the fourth quarter (ending December 2023) to increase 6.5% and 17.2% year-over-year to $164.25 million and $0.39, respectively.
Moreover, the company’s revenue has grown at CAGRs of 33.2% and 23.5% over the past three and five years, respectively. Furthermore, its EBITDA has increased at a CAGR of 30.9% over the past three years.
The stock has gained 32.6% over the past six months to close the last trading session at $12.93.
It’s no surprise that RNGR has an overall rating of B, which equates to Buy in our proprietary rating system. It has an A grade for Value and Momentum and a B for Growth. Out of 47 stocks in the same industry, it is ranked first.
In addition to the POWR Ratings we’ve stated above, we also have RNGR’s ratings for Stability, Sentiment, and Quality. Get all RNGR ratings here.
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CHX shares were trading at $37.67 per share on Monday afternoon, up $0.42 (+1.13%). Year-to-date, CHX has gained 31.04%, versus a 17.07% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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