Oil prices saw a rise on Tuesday due to diminishing hopes of a ceasefire between Israel and Hamas in Gaza. Mexico's plan to reduce its crude oil output also added to the upward pressure on prices by tightening the global supply.
With that in mind, here I present quality energy stocks: Energy Transfer LP (ET), Pembina Pipeline Corporation (PBA), and Matrix Service Company (MTRX). These companies stand to benefit from the ongoing momentum in the energy sector and also indicate an uptrend.
On April 5, Brent futures for June surpassed $91 a barrel and settled up $1.30 at $90.65, while U.S. West Texas Intermediate (WTI) futures for May settled up $1.16 at $86.59 a barrel. Both contracts closed at their highest levels since October and continued to climb post-session, buoyed by heightened geopolitical tensions and supply risks.
Furthermore, the energy sector’s historical expansion has been fueled by rising demand in developing nations and increased investment in oil and gas exploration. As a result, the oil and gas market is likely to reach $7.63 trillion in 2024, growing at a CAGR of 6.1%.
On top of it, over the past three months, the Energy Select Sector SPDR Fund (XLE) has soared 16.4%, compared to SPDR S&P 500 ETF Trust’s (SPY) 9.3% gain, reflecting investors’ confidence in the energy sector.
Considering the industry tailwinds, let us analyze top energy stocks now:
Energy Transfer LP (ET)
ET offers energy-related services, owning and operating around 11,600 miles of natural gas transportation pipeline, along with storage facilities in Texas and Oklahoma. It also manages 19,945 miles of interstate natural gas pipeline.
On March 20, 2024, ET announced its intention to redeem all outstanding Series E Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units on May 15, 2024, at a redemption price of $25.00 per Unit. Holders of Units as of May 1, 2024, will receive accrued distributions up to May 15, 2024, totaling $0.4750 per Unit.
On February 23, ET and Sunoco LP (SUN) joined forces to sponsor Sauber Motorsport's Stake F1 Team KICK Sauber, marking their inaugural marketing partnership. The two-year agreement, starting from the 2024 season, grants sponsorship rights for three Formula 1 Grand Prix races in the U.S.
The company distributes an annual dividend of $1.26, which yields 7.96% on the current market prices. It has raised its dividend payouts at a CAGR of 10.8% over the past three years.
During the fiscal fourth quarter that ended December 31, 2023, ET’s revenues rose marginally year-over-year to $20.53 billion. Its operating income rose 19.9% year-over-year to $2.17 billion. Net income attributable to partners and net income per common unit came in at $1.33 billion and $0.37, respectively, up 14.9% and 8.8% from the prior-year quarter. In addition, its adjusted EBITDA increased 4.8% year-over-year to $3.60 billion.
For fiscal year 2024, ET anticipates its adjusted EBITDA to fall between $14.5 billion and $14.8 billion, reflecting a 7% increase from 2023. Growth capital expenditures are estimated to range from $2.4 billion to $2.6 billion, including deferred spending from 2023.
For the fiscal first quarter (ended March 2024), ET’s EPS and revenue are likely to increase 22.6% and 18.5% year-over-year to $0.39 and $22.50 billion, respectively.
Over the past year, the stock has gained 26.5% to close the last trading session at $15.82. It has soared 13.2% over the past three months. The stock currently trades over its 50-day and 200-day moving averages, which are $14.93 and $13.82, respectively, indicating an uptrend.
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. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has a B grade for Growth, Value, Momentum, Stability, and Sentiment. Within the Energy – Oil & Gas industry, it is ranked #2 out of 83 stocks.
To see ET’s rating for Quality, click here.
Pembina Pipeline Corporation (PBA)
Calgary-based PBA is a leading provider of energy transportation and midstream services in North America. With a diverse portfolio including pipelines, facilities, and marketing ventures, PBA is at the forefront of energy innovation through its three segments: Pipelines; Facilities; and Marketing & New Ventures.
On April 4, PBA and the Haisla Nation announced significant progress on the Cedar LNG project, including securing long-term commercial support and issuing a Notice to Proceed to EPC contractors.
Highlights include a 20-year liquefaction tolling services agreement with ARC Resources Ltd. for 1.50 million tonnes per annum and PBA's intention to assign its capacity to a third party after a positive FID.
On April 1, PBA finalized its acquisition of Enbridge’s interest in several joint ventures, including Alliance, Aux Sable, and NRGreen. The $3.10 billion purchase price was partially funded through PBA's bought deal offering of subscription receipts, which closed on December 19, 2023.
On March 28, PBA paid its first quarter dividend of $0.6675 per share. It pays an annual dividend of $1.99, which yields 5.50% on the prevailing price level, compared to a four-year average dividend yield of 6.28%.
In the fiscal fourth quarter, which ended on December 31, 2023, PBA’s net revenue increased 7.1% year-over-year to CAD1.12 billion ($824.14 million). Its gross profit rose 24.8% from the year-ago quarter to CAD850 million ($625.46 million).
Moreover, the company’s earnings amounted to CAD698 million ($513.62 million) and CAD1.21 per share, up 187.2% and 210.3% from the prior-year quarter, respectively. Besides, its yearly gain in volume amounted to 61 mboe/d, increasing from 3,392 mboe/d to 3,453 mboe/d.
PBA revised its 2024 adjusted EBITDA guidance range to $4.05 billion to $4.30 billion, up from the previous range of $3.73 billion to $4.03 billion.
Analysts predict PBA’s revenue to rise 6.3% year-over-year to $7.19 billion in the fiscal year 2024. Its FFO is expected to improve 7.4% from the previous year to $3.99 in the same year.
The stock has surged 23.6% over the past six months to close the last trading session at $35.89. It is currently trading higher than its 50-day and 200-day moving averages, which stand at $34.73 and $32.46, respectively.
PBA’s POWR Ratings are consistent with this rosy outlook. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
It has a B grade for Growth, Momentum, and Stability. It is ranked #19 out of 40 stocks in the A-rated Foreign Oil & Gas industry.
In addition to the POWR Ratings stated above, one can access PBA’s ratings for Value, Sentiment, and Quality here.
Matrix Service Company (MTRX)
MTRX engineers, fabricates, constructs, and provides maintenance services to support critical energy infrastructure and industrial markets in the U.S., Canada, and internationally. It operates through three segments: Utility and Power Infrastructure; Process and Industrial Facilities; and Storage and Terminal Solutions.
On March 19, MTRX announced a partnership with Engicon nv (Geldof) to offer total Engineering, Procurement, and Construction (EPC) solutions for ammonia storage in Europe. This collaboration aims to meet the rising demand for sustainable energy resources by providing world-class storage solutions for ammonia, also used as a hydrogen carrier.
MTRX’s trailing-12-month asset turnover ratio of 1.82x is 128.6% higher than the industry average of 0.79x.
As of December 31, 2023, MTRX’s backlog soared to a record high of $1.45 billion. In the second quarter of fiscal 2024, it secured project awards totaling $230.80 million, resulting in a commendable book-to-bill ratio of 1.3.
During the fiscal second quarter that ended December 31, 2023, MTRX’s operating results were in line with their expectations. Its revenue stood at $175.04 million and gross profit stood at $10.59 million, compared to a gross loss of $1.30 million in the year-ago quarter. Total selling, general, and administrative expenses decreased by 10.3% from the year-ago quarter to $15.73 million. Moreover, the company reported an adjusted EBITDA of $279 thousand, compared to a loss of $13.09 million in the previous-year quarter.
Street expects MTRX’s revenue for the fiscal third quarter ending March 2024 to increase 4.5% year-over-year to $195.29 million. Its EPS is expected to show a year-over-year rise of 60.6% in the same quarter.
The stock has gained 152.9% over the past year to close the last trading session at $13.15. Over the past nine months, it has gained 119.2%. It currently trades above its 50-day and 200-day moving averages of $11.98 and $9.82, respectively.
MTRX’s POWR Ratings reflect its positive prospects. The stock has an overall B rating, equating to Buy in our proprietary rating system.
MTRX has a B grade for Growth, Momentum, and Sentiment. Within the 49-stock Energy – Services industry, it is ranked #5.
Click here for the additional POWR Ratings for MTRX (Value, Stability, and Quality).
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 $15.71 per share on Tuesday morning, down $0.11 (-0.70%). Year-to-date, ET has gained 16.40%, versus a 9.11% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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