Despite an increasing global emphasis on sustainable energy practices, robust oil and gas demand indicates a potential rise in the consumption of non-renewable resources. Given this backdrop, quality energy stocks ChampionX Corporation (CHX), Ultrapar Participações S.A. (UGP), and Star Group, L.P. (SGU) could be wise portfolio additions now.
While the transition toward renewable energy solutions intensifies, projections indicate a continuous robust demand for oil and gas globally. According to the International Energy Agency (IEA), by 2024, global oil demand is expected to surge by 930,000 bpd, primarily driven by robust economic growth in India and China's ongoing economic recovery.
The OPEC’s 2023 World Oil Outlook forecasts global oil demand to reach 116 million bpd by 2045. To meet the oil demand forecast for the long term, OPEC suggests an investment of approximately $14 trillion in the oil sector, averaging $610 billion annually.
OPEC+ has initiated voluntary output cuts of about 2.2 million barrels per day throughout the first quarter of 2024. This could lead to an increase in prices due to tightened supplies amid the amplifying demand.
Recent upward trends in oil prices have been stimulated by global shipping companies' decision to avoid the Red Sea in light of heightened security concerns, causing a temporary halt of services through the crucial Bab el Mandeb strait. This maritime checkpoint accounts for nearly 12% of global trade, encompassing a substantial portion of international oil commerce. Any escalation in this situation could further propel oil prices.
Barclays and S&P Global anticipate oil to average at $93 and $85 per barrel, respectively, in 2024. Meanwhile, as per Fidelity's 2024 energy outlook, crude oil prices could stay high, boosted by increased geopolitical risk, tight supply, and strong global energy demand. This optimistically sets the stage for potential profitability and an upward shift in sector stock prices.
Furthermore, the surge of international investments and offshore production is expected to invigorate the market, increasing demand for energy equipment and services companies.
With these favorable trends in mind, let's delve into the fundamentals of the three energy sector stocks.
ChampionX Corporation (CHX)
CHX provides chemistry solutions, and engineered equipment and technologies to oil and gas companies worldwide. The company operates through four segments: Production Chemical Technologies; Production & Automation Technologies; Drilling Technologies; and Reservoir Chemical Technologies.
On November 10, CHX’s Board of Directors declared a regular quarterly dividend of $0.09 per share on the company’s common stock, par value of $0.01 per share, payable to the shareholders on January 26, 2024.
Its annualized dividend rate of $0.34 per share translates to a dividend yield of 1.11% on the current share price. Its four-year average yield is 0.37%.
The company demonstrated its commitment to return excess cash to its shareholders. Through $68 million share repurchases and regular cash dividends of $17 million, it returned 52% of cash from operating activities and 74% of its free cash flow in the third quarter to its shareholders.
CHX’s trailing-12-month asset turnover ratio of 1.13x is 105.9% higher than the industry average of 0.55x. Its trailing-12-month ROTC and ROTA of 12.92% and 9.21% are 38.9% and 22.9% higher than the industry averages of 9.30% and 7.49%, respectively.
Over the past three and five years, its revenue grew at CAGRs of 38.1% and 26.6%, respectively, while its EBITDA grew at 83% and 22.9% CAGRs over the same periods.
In the fiscal third quarter that ended September 30, 2023, CHX’s revenue stood at $939.78 million, while its gross profit increased 48.5% year-over-year to $291.86 million. Moreover, its adjusted EBITDA stood at $189.54 million, up 14.1% from the year-ago quarter.
For the same quarter, adjusted net income attributable to CHX and adjusted earnings per share attributable to CHX increased 19.3% and 24.2% from the prior-year quarter to $80.95 million and $0.41, respectively. For the nine months that ended September 30, 2023, cash and cash equivalents stood at $285.01 million, up 49.2% from the year-ago period.
Street expects CHX’s EPS for the fiscal fourth quarter ending December 2023 to increase 4% year-over-year to $0.45. Its revenue is expected to be $954.98 million. The company surpassed consensus EPS estimates in three of the trailing four quarters, which is impressive.
The stock has gained 20.4% over the past nine months to close the last trading session at $30.70. Over the past year, it has gained 10.6%.
CHX’s POWR Ratings reflect its positive prospects. The stock has an overall B rating, equating to 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 Momentum and Quality. Within the Energy - Services industry, it is ranked #6 out of 49 stocks.
To see additional POWR Ratings for Growth, Value, Stability, and Sentiment for CHX, 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).
On September 5, UGP paid a half-yearly dividend of $0.05 per common share. Its annualized dividend of $0.07 per share translates to a dividend yield of 1.28% on the current share price. Its four-year average yield is 3.03%.
UGP’s trailing-12-month cash per share of $1.10 is 18.9% higher than the industry average of $0.93, while its trailing-12-month asset turnover ratio of 3.65x is 563.5% 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.
In the fiscal third quarter that ended September 30, 2023, UGP’s net revenues from sales and services stood at R$32.48 billion ($6.68 billion), while gross profit increased 80.9% year-over-year to R$2.86 billion ($588.69 million).
For the same quarter, its net income and earnings per share stood at R$891.20 million ($183.17 million) and R$0.79, up significantly from the prior-year quarter, respectively. Moreover, its adjusted EBITDA stood at R$2 billion ($411.26 million), up 138.7% from the year-ago quarter.
Street expects UGP’s EPS in the fiscal year ending December 2023 to increase 167.4% year-over-year to $0.22. Its revenue is expected to be $25.76 billion.
The stock has gained 126.5% year-to-date to close the last trading session at $5.48. Over the past nine months, it has gained 113.2%.
UGP’s 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.
UGP has an A grade for Sentiment and a B for Value. Within the B-rated Foreign - Oil & Gas industry, it is ranked #2 out of 43 stocks.
Beyond what we’ve stated above, we have also rated the stock for Growth, Momentum, Stability, and Quality. Get all ratings of UGP here.
Star Group, L.P. (SGU)
SGU provides home heating oil and propane products and services to residential and commercial customers in the U.S. It offers gasoline and diesel fuel; and installs, maintains, and repairs heating and air conditioning equipment.
On October 30, SGU paid a quarterly dividend of $0.16 per common unit for the quarter that ended September 30, 2023. Its annualized dividend rate of $0.65 per share translates to a dividend yield of 4.97% on the current share price.
Its four-year average yield is 5.48%. SGU’s dividend payments have grown at CAGRs of 7% and 6.7% over the past three and five years, respectively. The company has paid dividends for 14 consecutive years.
SGU’s trailing-12-month asset turnover ratio of 2.18x is 872% higher than the industry average of 0.22x. Its trailing-12-month ROCE, ROTC, and ROTA of 10.97%, 6.80%, and 3.62% are 20.5%, 80.9%, and 51.2% higher than the industry averages of 9.10%, 3.76%, and 2.39%, respectively.
Over the past three and five years, its revenue grew at CAGRs of 10% and 3.1%, respectively, while its total assets grew at 1.4% and 3.7% CAGRs over the same periods.
In the fiscal fourth quarter that ended September 30, 2023, SGU’s total sales and net cash provided by operating activities stood at $266.94 million and $20.94 million, respectively. For the twelve months that ended September 30, 2023, adjusted EBITDA stood at $96.87 million.
As of September 30, 2023, SGU’s total current liabilities stood at $364.88 million, compared to $381.08 million as of September 30, 2022.
The stock has gained 10.3% over the past year to close the last trading session at $12.87. Over the past month, it has gained 7.4%.
SGU’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.
SGU has an A grade for Quality and a B for Value and Sentiment. It is ranked first within the A-rated 26-stock MLPs – Oil & Gas industry.
Click here for the additional POWR Ratings for SGU (Growth, Momentum, and Stability).
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CHX shares were unchanged in premarket trading Wednesday. Year-to-date, CHX has gained 7.06%, versus a 26.27% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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