The energy sector is slowly shifting toward cleaner sources due to increasing worries about climate change. Despite the current low energy prices, the industry is well-positioned to achieve sustainable growth by managing temporary supply limitations and addressing the anticipated long-term surge in demand.
Amid this backdrop, it could be wise to add quality energy stocks Energy Transfer LP (ET), NOW Inc. (DNOW), and Ranger Energy Services, Inc. (RNGR) to one’s portfolio.
Before diving deeper into the fundamentals of these stocks, let’s understand what’s shaping the energy industry’s prospects.
Energy companies capitalized on supply concerns last year, achieving record profits due to an embargo on Russian energy supply. Oil and gas prices stabilized toward the end of last year before rising above $90 a barrel for the first time in ten months in September. However, oil prices have since fallen, hitting a six-month low.
To boost the sagging oil prices, Saudi Arabia led the extension of voluntary cuts by deepening its reduction by 1 million bpd until March next year. Russia followed with a 500,000-bpd cut in crude and refined oil products. OPEC+ intends to cut production by more than 2 million barrels daily through the first three months of next year.
Meanwhile, U.S. crude oil production hit a new monthly record of 13.236 million bpd in September. Despite the production cuts announced by OPEC+ and Russia, the near-term demand outlook for oil looks weak due to record U.S. crude oil production, surplus inventory and the weak economic outlook of the Chinese economy.
However, the long-term demand outlook for oil looks promising, with JP Morgan expecting world oil demand to reach 106.9 mbd by 2030, a 5.5 mbd rise from 2023 levels. It believes oil prices could spike to $150/bbl in the near to medium term and $100/bbl over the long term. JPMorgan expects an average price of $83 a barrel in 2024.
The IEA increased its 2023 oil demand growth forecast to 2.4 million bpd and raised the 2024 forecast to 930,000 bpd. OPEC also raised its 2023 global oil demand growth to 2.46 million bpd and expects a 2.25 million bpd increase in 2024.
Additionally, there is a growing global shift toward renewable energy, with over 140 countries setting net-zero emission targets. Global electricity demand is forecasted to grow between 62% and 185% by 2050 when compared to 2021 levels.
The EIA estimates that U.S. power generation from renewables will rise from 21% in 2021 to 44% in 2050. However, oil is expected to remain the most significant energy source, just ahead of renewables.
With the dependence on oil unlikely to stutter anytime soon, energy companies offering services related to oil and gas drilling, evaluation, production, maintenance, etc., will likely perform well. The global oilfield services market industry is projected to reach $421.31 billion by 2030, growing at a CAGR of 5.6%.
Considering these conducive trends, let’s discuss the fundamentals of the featured stocks.
Energy Transfer LP (ET)
ET provides energy-related services. It owns and operates approximately 11,600 miles of natural gas transportation pipeline, three natural gas storage facilities, and two natural gas storage facilities in Texas and Oklahoma. Additionally, it manages 19,945 miles of interstate natural gas pipeline.
On November 16, 2023, ET announced a non-binding agreement with TotalEnergies to take 4 million barrels of crude oil monthly from its Blue Marlin Offshore Port. The deal is pending final agreements and conditions, emphasizing the importance of expanding U.S. energy exports globally.
On November 3, 2023, ET completed its merger with Crestwood Equity Partners LP, expanding its ownership and operation of over 125,000 miles of pipelines and assets across major U.S. regions. This positions ET as a leader in the midstream sector, serving 41 states.
ET’s revenue has grown at a 22.6% CAGR over the past three years. Its EBITDA has grown at an 8.3% CAGR over the past three years. Likewise, its levered FCF has grown at 250.4% CAGR over the past three years.
ET’s revenues for the third quarter ended September 30, 2023, came in at $20.74 billion. Its operating income rose 13.2% year-over-year to $2.23 billion. The company’s net income attributable to partners came in at $584 million. Also, its net income per common unit came in at $0.15. In addition, its adjusted EBITDA increased 14.7% year-over-year to $3.54 billion.
Street expects ET’s EPS and revenue for the quarter ending December 31, 2023, to increase 0.4% and 7% year-over-year to $0.34 and $21.93 billion, respectively. Over the past year, the stock has gained 16.2% to close the last trading session at $13.27.
ET’s POWR Ratings reflect its solid prospects. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #8 out of 85 stocks in the Energy – Oil & Gas industry. It has a B grade for Value and Momentum. Click here to see the other ratings of ET for Growth, Stability, Sentiment, and Quality.
NOW Inc. (DNOW)
DNOW distributes downstream energy and industrial products for petroleum refining, chemical processing, LNG terminals, power generation utilities, and industrial manufacturing operations internationally. It offers its products under the DistributionNOW and DNOW brand names.
DNOW’s revenue has grown at a 6.1% CAGR over the past three years. Likewise, its total assets have grown at a 9.8% CAGR over the past three years.
For the fiscal third quarter that ended September 30, 2023, DNOW’s revenue increased 1.9% year-over-year to $588 million. Moreover, its non-GAAP net income and EPS attributable to DNOW came in at $28 million and $0.25, respectively.
For fiscal 2023, DNOW’s EPS and revenue are expected to increase 1.6% and 8.1% year-over-year to $0.97 and $2.31 billion, respectively. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past six months, the stock has gained 8.5% to close the last trading session at $10.95.
DNOW’s POWR Ratings reflect this positive outlook. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
Within the Energy – Services industry, it is ranked #6 out of 49 stocks. It has an A grade for Momentum and a B for Value. To see DNOW’s ratings for Growth, Stability, Sentiment, and Quality, click here.
Ranger Energy Services, Inc. (RNGR)
RNGR provides onshore high-specification well service rigs, wireline completion services, and complementary services to exploration and production. It operates through three segments: High Specification Rigs, Wireline Services, and Processing Solutions and Ancillary Services.
On June 26, 2023, RNGR announced its selection to join the Russell 3000 Index following the annual reconstitution by FTSE Russell. This inclusion in the broad-market index enhances RNGR’s visibility and exposure to institutional investors and index funds.
RNGR’s CEO Stuart Bodden stated, “Ranger is honored to join the Russell 3000 Index. 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.”
RNGR’s revenue has grown at a 19% CAGR over the past five years. Its EBITDA has grown at a 41.2% CAGR over the past three years. Likewise, its Tang book value has grown at 42.4% CAGR over the past three years.
RNGR’s total revenue for the third quarter ended September 30, 2023, came in at $164.40 million. Its net income came in at $9.40 million and $0.38 per share, respectively. Also, its adjusted EBITDA came in at $24 million.
For nine months ended September 30, 2023, the company’s cash and cash equivalents stood at $8.20 million, up 121.6% year-over-year.
Analysts expect RNGR’s EPS for the quarter ending March 31, 2024, to increase 25.1% year-over-year to $0.30. Its revenue for the quarter ending June 30, 2024, is expected to increase 1.8% year-over-year to $166.05 million. Over the past month, the stock has declined 2.6% to close the last trading session at $10.06.
RNGR’s POWR Ratings reflect its solid prospects. It has an overall rating of B, translating to Buy in our proprietary rating system.
It has an A grade for Value and a B for Momentum. Within the Energy – Services industry, it is ranked #9. To access RNGR’s additional grades for Growth, Stability, Sentiment, and Quality, click here.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
ET shares were trading at $13.18 per share on Tuesday afternoon, down $0.09 (-0.68%). Year-to-date, ET has gained 22.14%, versus a 22.29% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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