In January, U.S. crude and the global benchmark Brent increased 5.86% and 6.06%, respectively, marking the first monthly gain since September. This uptick can be attributed to the escalating tensions between the U.S. and Iran, bringing them closer to a potential direct confrontation in the Middle East.
While the potential demand weakness in China could put downward pressure, rising global demand and supply disruptions are expected to drive crude oil prices higher this year.
Given this backdrop, quality oil and gas stocks Enterprise Products Partners L.P. (EPD), Ultrapar Participações S.A. (UGP), and Transportadora de Gas del Sur S.A. (TGS) could drive solid returns to one’s portfolio.
According to the International Energy Agency's (IEA) monthly report, 2024 anticipates oil demand growth to increase by 1.24 million barrels per day (bpd). Some traders anticipate oil prices to rise to $110 per barrel in the early spring of 2024, even though the prices have been lingering around $80 per barrel for weeks.
Besides the Middle East tensions, the recent oil output disruption in Libya has further pushed Brent crude oil prices. Additionally, the OPEC+ production cuts have propelled a bullish environment for oil prices.
JPMorgan forecasts stable market conditions this year, anticipating an average Brent crude oil price of $83 per barrel. Moreover, the U.S. oil and gas market is expected to register a CAGR of more than 4% by 2029.
In light of these encouraging trends, let's look at the fundamentals of the featured oil and gas stocks.
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 of $2.06 per share translates to a dividend yield of 7.73% on the current share price. Its four-year average yield is 8.09%. EPD’s dividend payments have grown at CAGRs of 4% and 3.1% over the past three and five years, respectively.
Additionally, EPD 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 $683.03 million. Its trailing-12-month ROCE and ROTA of 20.56% and 7.92% are 7.5% and 8.4% higher than the industry averages of 19.13% and 7.31%, respectively.
Over the past three and five years, its EBITDA grew at CAGRs of 5.2% and 5.4%, respectively, while its normalized net income grew at 7.3% and 5.7% CAGRs over the same periods.
For the fiscal fourth quarter that ended December 31, 2023, EPD’s revenues and operating income increased 7.1% and 8.8% year-over-year to $14.62 billion and $1.92 billion, respectively. Moreover, its adjusted EBITDA stood at $2.50 billion, up 5.2% from the year-ago quarter.
For the same quarter, its net income attributable to common unitholders and earnings per common unit increased 10.4% and 10.8% from the prior-year quarter to $1.57 billion and $0.72, respectively.
Street expects EPD’s revenue for the fiscal first quarter ending March 2024 to increase 15.9% year-over-year to $14.42 billion, and EPS is expected to increase marginally year-over-year to $0.64.
The stock has gained 3.3% over the past year to close the last trading session at $26.66. Over the past nine months, it has gained 2.1%.
EPD’s POWR Ratings reflect its positive prospects. The stock has an overall A rating, equating to a Strong 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 Growth, Value, Momentum, Stability, and Sentiment. Within the A-rated MLPs – Oil & Gas industry, it is ranked #2 out of 25 stocks. To see additional POWR Ratings for Quality for EPD, click here.
Ultrapar Participações S.A. (UGP)
Headquartered in São Paulo, Brazil, UGP operates in the energy and infrastructure business. It operates in five segments: Gas distribution (Ultragaz); Fuel distribution (Ipiranga); Chemicals (Oxiteno); Storage (Ultracargo); and Drugstores (Extrafarma).
Its annualized dividend of $0.07 per share translates to a dividend yield of 1.26% on the current share price. Its four-year average yield is 3%.
UGP’s trailing-12-month cash per share of $1.10 is 17.8% higher than the industry average of $0.94, while its trailing-12-month asset turnover ratio of 3.65x is 561.9% higher than the industry average of 0.55x.
Over the past three and five years, its revenue grew at CAGRs of 16.3% and 7.7%, respectively, while its tangible book value grew at 11.5% and 9.1% CAGRs over the same periods.
For the fiscal third quarter that ended September 30, 2023, UGP’s net revenues from sales and services stood at R$32.48 billion ($6.53 billion), while gross profit increased 80.9% year-over-year to R$2.86 billion ($576.16 million).
For the same quarter, its net income attributable to shareholders of UGP and earnings per share stood at R$864.90 million ($173.98 million) and R$0.79, up significantly from the prior-year quarter, respectively.
Moreover, its adjusted EBITDA stood at R$2 billion ($402.51 million), up 138.7% from the year-ago quarter.
Street expects UGP’s revenue and EPS for the fiscal year ending December 2024 to increase 1.8% and 24.5% year-over-year to $26.40 billion and $0.27, respectively.
The stock has gained 121.4% over the past year to close the last trading session at $5.58. Over the past nine months, it has gained 100.7%.
UGP’s robust prospects are reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
UGP has a B grade for Value, Stability, and Sentiment. It is ranked #4 out of 43 stocks within the B-rated Foreign Oil & Gas industry. Click here for the additional POWR Ratings for UGP (Growth, Momentum, and Quality).
Transportadora de Gas del Sur S.A. (TGS)
Headquartered in Buenos Aires, Argentina, TGS transports natural gas and produces and commercializes natural gas liquids. The company operates through four segments: Natural Gas Transportation Services; Liquids Production and Commercialization; Other Services; and Telecommunications.
TGS’ trailing-12-month CAPEX/Sales of 37.28% is 169.8% higher than the industry average of 13.82%.
Over the past three and five years, its revenue grew at CAGRs of 20.1% and 24.7%, respectively, while its tangible book value grew at 108.8% and 165.3% CAGRs over the same periods.
For the fiscal third quarter that ended September 30, 2023, TGS’ revenues and operating profit stood at ARS 74.59 billion ($90.10 million) and ARS 17.29 billion ($20.89 million), respectively.
For the same quarter, its total comprehensive income and earnings per ADS stood at ARS 4.88 billion ($5.89 million) and ARS 32.43, respectively. Moreover, its free cash flow stood at ARS 3.04 billion ($3.67 million).
Street expects TGS’ revenue and EPS for the fiscal year ending December 2024 to increase 1.5% and 193.6% year-over-year to $685.39 million and $0.91, respectively. For the fiscal first quarter ending March 2024, the company’s EPS is expected to grow 61.9% year-over-year to $0.28. The company surpassed consensus EPS estimates in each of the trailing four quarters, which is impressive.
The stock has gained 36.9% over the past three months to close the last trading session at $14.95. Over the past year, it has gained 35.1%.
TGS’ solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
TGS has an A grade for Sentiment and a B for Momentum and Quality. Within the Foreign Oil & Gas industry, it is ranked #5. Beyond what we’ve stated above, we have also rated the stock for Growth, Value, and Stability. Get all ratings of TGS here.
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EPD shares were trading at $26.41 per share on Monday morning, down $0.25 (-0.94%). Year-to-date, EPD has gained 2.14%, versus a 3.72% rise in the benchmark S&P 500 index during the same period.
About the Author: Neha Panjwani
From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance.
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