As oil prices are on the rise, driven by expectations that summer fuel demand will deplete inventories and tighten the market in the third quarter, investors are once again eyeing opportunities in the oil and gas sector.
Below, I have highlighted three fundamentally sound oil and gas stocks: HF Sinclair Corporation (DINO), Energy Transfer LP (ET), and Cenovus Energy Inc. (CVE), which stand out as compelling bargains poised for recovery.
Yesterday, U.S. crude oil surged over 1%, surpassing $81 per barrel and continuing its upward momentum from last week. West Texas Intermediate futures climbed more than 2% on Monday despite mixed economic data from China, the world’s largest importer of crude oil.
OPEC projects the Chinese economy to grow by 4.8% this year, making it a key driver of crude consumption in developing countries. However, the International Energy Agency (IEA) has revised its global oil demand outlook downward due to slower demand growth in China.
According to the IEA, demand growth in China decreased from 800,000 barrels per day in the first quarter to just 95,000 barrels per day in April. Consequently, global oil demand growth is now expected to be 960,000 barrels per day this year, about 100,000 barrels per day lower than previously forecast.
Despite this, oil stockpiles are expected to drop by 850,000 barrels per day in the third quarter, according to Helima Croft, head of global commodity strategy at RBC Capital Markets. The Energy Information Administration (EIA) has also raised its 2024 world oil demand growth forecast to 1.10 million barrels per day, up from a previous estimate of 900,000 barrels per day.
OPEC remains optimistic, maintaining its 2024 forecast for robust global oil demand growth, mainly driven by travel and tourism in the latter half of the year. With its allies, the organization has agreed to extend most oil output cuts well into 2025, with plans to gradually phase out these cuts starting in October 2024.
Furthermore, according to the EIA, U.S. crude oil output in 2024 is expected to rise to 13.24 million barrels, its highest ever.
Given the industry tailwinds, let’s look at the fundamentals of these stocks in detail, beginning with number 3.
Stock #3: HF Sinclair Corporation (DINO)
DINO produces and markets a diverse range of petroleum products, including gasoline, diesel fuel, jet fuel, renewable diesel, and specialty lubricants. Additionally, it offers specialized chemicals, asphalt, base oils, and lubricants, along with comprehensive transportation, storage, and throughput services for the petroleum sector.
On May 5, DINO announced a regular quarterly dividend of $0.50 per share, payable to its shareholders on June 5, 2024. The company’s annualized dividend of $2 per share translates to a dividend yield of 3.84% on the current share price. Its four-year average yield is 3.02%. Over the past three and five years, DINO’s dividend payments have grown at CAGRs of 21.9% and 7.6%, respectively.
In terms of forward EV/Sales, DINO is trading at 0.39x, 79.9% lower than the industry average of 1.95x. Likewise, the stock’s forward EV/EBIT multiple of 7.27 is 22.2% lower than the industry average of 9.34. Also, its 0.33x forward Price/Sales ratio is 76.3% lower than the industry average of 1.38x.
For the fiscal first quarter that ended March 31, 2024, DINO’s sales and other revenues amounted to $7.03 billion, while its income from operations stood at $6.62 billion. Additionally, net income and EPS attributable to DINO stockholders came in at $314.66 million and $1.57 per share, respectively.
DINO’s adjusted EBITDA for the quarter amounted to $399.06 million. Furthermore, as of March 31, 2024, the company’s total assets were $17.92 billion, up from $17.72 billion as of December 31, 2023.
Street expects DINO’s revenue for the second quarter (ending June 2024) to increase 1.7% year-over-year to $64.06 billion. DINO is anticipated to post an earnings per share of $1.83 in the same period. Moreover, the company topped the consensus EPS estimates in each of the trailing four quarters.
Shares of DINO have gained 13.4% over the past year to close the last trading session at $52.14.
DINO’s robust outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
DINO has a B grade for Value, Momentum, and Quality. It is ranked #16 out of 80 stocks in the Energy - Oil & Gas industry.
In addition to the POWR Ratings we’ve stated above, we also have other ratings of DINO for Growth, Stability, and Sentiment. Get all DINO ratings here.
Stock #2: Energy Transfer LP (ET)
ET provides energy-related services worldwide. It owns and operates natural gas transportation pipeline and natural gas storage facilities in Texas and Oklahoma; and nearly 20,090 miles of interstate natural gas pipeline. It also sells natural gas to electric utilities, independent power plants, local distribution and other marketing companies, and industrial end-users.
On May 28, the company announced the acquisition of WTG Midstream Holdings LLC (WTG) for approximately $3.25 billion. WTG owns and operates the largest private gas gathering and processing business in the Permian Basin, with significant assets in the core of the Midland Basin.
This acquisition, expected to close in the third quarter of 2024, aims to expand ET’s natural gas pipeline and processing network in the Permian Basin and strengthen its downstream operations.
On April 24, ET announced an increase in its quarterly cash distribution to $0.3175 per common unit for the first quarter of fiscal 2024. This cash distribution reflects a rise of 3.3% compared to the first quarter of 2023 and was paid on May 20, 2024, to unitholders of record as of the close of business on May 13, 2024.
ET pays an annual distribution of $1.27 per unit, which translates to a yield of 8.29% on the prevailing share price. Its four-year average dividend yield is 9.47%. Moreover, the company’s dividend payouts have grown at a CAGR of 18.1% over the past three years.
In terms of forward non-GAAP PEG, ET is trading at 0.72x, which is 59.6% lower than the industry average of 1.78x. Likewise, the stock’s forward EV/Sales multiple of 1.35 is 30.7% lower than the industry average of 1.95. Also, the stock’s 0.59x forward Price/Sales ratio compares to the industry average of 1.38x.
During the first quarter that ended March 31, 2024, ET’s revenues increased 13.9% year-over-year to $21.63 billion. Its operating income rose 15.4% year-over-year to $2.38 billion. The company’s net income was $1.69 billion, up 16.9% from the previous year’s quarter. Its adjusted EBITDA grew 13% from the year-ago value to $3.88 billion.
In addition, the company’s distributable cash flow came in at $2.87 billion, an increase of 15.8% year-over-year. As of March 31, 2024, its current assets were $15.02 billion, compared to $12.43 billion as of December 31, 2023.
Analysts expect ET’s revenue and EPS for the second quarter (ending June 2024) to increase 16.8% and 39.9% year-over-year to $21.39 billion and $0.35, respectively. Further, the company’s revenue and EPS for the fiscal year 2024 are expected to grow 11.8% and 36.8% year-over-year to $87.87 billion and $1.49, respectively.
The stock has gained 20.8% over the past year to close the last trading session at $15.48.
ET’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
It has an A grade for Momentum and a B for Growth, Value, and Stability. Within the same industry, it is ranked #7 out of 80 stocks. Click here to access ET’s rating for Sentiment and Quality.
Stock #1: Cenovus Energy Inc. (CVE)
Headquartered in Calgary, Canada, CVE develops, produces, refines, transports, and markets crude oil, natural gas, and refined petroleum products in Canada and internationally. It operates through segments like Oil Sands; Conventional; Offshore, Canadian Refining; and U.S. Refining.
On May 1, CVE’s Board of Directors declared a quarterly base dividend of $0.18 per common share, payable on June 28, 2024, to shareholders of record as of June 14, 2024. Additionally, it paid a variable dividend of C$0.135 per share on May 31.
CVE pays an annual dividend of $0.53 per share, which translates to a yield of 2.86% on the current share price. Its four-year average dividend yield is 1.45%. The company’s dividend payouts have grown at a robust CAGR of 147.8% over the past three years.
In terms of forward non-GAAP P/E, CVE is trading at 9x, 15.4% lower than the industry average of 10.63x. Likewise, the stock’s forward EV/Sales multiple of 0.94 is 51.6% lower than the industry average of 1.95. Further, its 0.81x forward Price/Sales ratio compares to the industry average of 1.38x.
CVE’s revenues increased 9.3% year-over-year to C$13.40 billion ($9.76 billion) in the first quarter that ended March 31, 2024. Its earnings before income tax improved 162.1% from the year-ago value to C$1.55 billion ($1.13 billion). Net earnings came in at C$1.18 billion ($859.40 million) and C$0.62 per common share, up 84.9% and 93.7% from the prior year’s quarter, respectively.
The company's cash inflows from operating activities amounted to C$1.93 billion ($1.40 billion), marking a significant turnaround from the C$286 million ($208.29 million) outflow in the prior year quarter.
Analysts expect CVE’s revenue for the second quarter (ending June 2024) to increase 14.5% year-over-year to $11.13 billion, and its EPS for the ongoing quarter is expected to grow 120.1% year-over-year to $0.63. For the fiscal year 2024, the company’s revenue and EPS are expected to grow 10.7% and 29.7% year-over-year to $42.89 billion and $2.07, respectively.
Over the past six months, the stock has gained 14.5%, closing the last trading session at $18.66.
CVE’s sound prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
It also has a B grade for Growth and Value. CVE is ranked #6 out of 80 stocks within the Energy - Oil & Gas industry. Click here to access the additional CVE ratings (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.
ET shares were trading at $15.48 per share on Wednesday afternoon, up $0.16 (+1.04%). Year-to-date, ET has gained 16.98%, versus a 15.75% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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