The energy sector’s outlook appears optimistic, with crude oil prices predicted to rise amid inadequate supply, stable demand, and ongoing geopolitical strife in the Middle East. The energy sector’s growth is being driven by a move toward renewable energy sources and technical improvements, which are likely to encourage additional investment and innovation.
Given the industry’s bright prospects, investors could consider buying fundamentally strong energy stocks such as Enterprise Products Partners L.P. (EPD), Koninklijke Vopak N.V. (VOPKY), and VAALCO Energy, Inc. (EGY). Before diving deeper into the fundamentals of these stocks, let’s understand what’s shaping the energy sector prospects.
Oil prices have been rising due to increased tensions in the Middle East as the war in Gaza wages on. Meanwhile, Iran has threatened retaliation against Israel over the destruction of its consulate in Syria, helping keep crude prices near six-month highs.
Concerns over the conflict spreading to other countries in the region and OPEC+’s decision to stick with oil supply cuts through the first half of the year could hinder global output, thereby keeping oil prices higher. Moreover, Mexico’s crude export cuts by at least 330,000 barrels per day (bpd) in May and Ukraine’s recent attacks on Russian oil refineries have raised worries about a potential supply squeeze.
OPEC has predicted robust fuel use in the summer months and maintained its forecast for relatively strong growth in global oil demand in 2024. In its monthly report, OPEC predicted that global oil demand will increase by 2.25 million barrels per day (bpd) in 2024 and by 1.85 million bpd in 2025.
The global oil and gas industry is expected to reach $65.80 billion by 2032, growing at a CAGR of 15.8%. Rising global energy demand and technological advancements, particularly in emerging markets, are expected to propel the industry forward. Investors’ interest in energy stocks is evident from the Energy Select Sector SPDR Fund’s (XLE) 19.5% returns over the past three months.
In light of these encouraging trends, let’s look at the fundamentals of the featured energy stocks.
Enterprise Products Partners L.P. (EPD)
EPD offers midstream energy services worldwide, including natural gas processing, NGL fractionation, crude oil transportation, and petrochemical marketing. With extensive pipeline networks and storage facilities, the company serves producers and consumers across various energy sectors.
On February 22, 2024, EPD announced that its affiliate had signed a definitive agreement to purchase member interests in Panola Pipeline Company, LLC from an affiliate of Western Midstream Partners, LP.
The acquisition of Panola Pipeline Company, LLC, will expand EPD's footprint in the Permian Basin region, enhancing its ability to transport and store crude oil and natural gas liquids. This strategic move aligns with EPD's goal of increasing its presence in key energy markets.
On February 21, 2024, EPD announced that certain of its affiliates acquired interests in Whitethorn Pipeline Company LLC and Enterprise EF78 LLC from Western Midstream Partners, LP.
These acquisitions will expand EPD’s footprint in the Permian Basin and strengthen its position as a leading midstream provider in the region. The transactions are expected to enhance EPD’s ability to provide integrated midstream services to customers in the area.
EPD’s trailing-12-month Return on Common Equity of 20.18% is 13.9% higher than the industry average of 17.72%. Likewise, the stock’s trailing-12-month Return on Total Assets of 7.79% is 16.7% higher than the industry average of 6.68%. Additionally, its 0.71x trailing-12-month asset turnover ratio is 37.6% higher than the industry average of 0.52x.
In the fourth quarter, which ended December 31, 2023, EPD’s revenues increased 7.1% year-over-year to $14.62 billion. The company’s net income and adjusted EBITDA grew 12.8% and 5.2% from the prior-year quarter to $1.60 billion and $2.50 billion, respectively. Its adjusted cash flow from operations rose 5.6% from the previous-year quarter to $2.22 billion.
Street expects EPD’s EPS and revenue for the quarter ended March 31, 2024, to increase 4.9% and 11.2% year-over-year to $0.67 and $13.84 billion, respectively. Over the past nine months, EPD’s shares have gained 10.4% to close the last trading session at $29.22.
EPD's POWR Ratings reflect this promising outlook. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
EPD has an A grade for Sentiment and a B for Growth, Value, Momentum, and Stability. Within the A-rated MLPs - Oil & Gas industry, it is ranked #5 out of 24 stocks. To see EPD's rating for Quality, click here.
Koninklijke Vopak N.V. (VOPKY)
Headquartered in Rotterdam, the Netherlands, VOPKY stores and handles liquid chemicals, gases, and oil products to the energy and manufacturing markets worldwide. The company operates LPG and chemical gas, industrial, chemical, and oil terminals and owns and operates specialized facilities consisting of tanks, jetties, truck loading stations, and pipelines.
VOPKY’s trailing-12-month gross profit margin of 95.67% is 105.6% higher than the industry average of 46.53%. Its trailing-12-month net income margin of 31.67% is 141.2% higher than the industry average of 13.13%. Additionally, its 9.50% trailing-12-month levered FCF margin is 42% higher than the 6.69% industry average.
For the fiscal fourth quarter that ended December 31, 2023, VOPKY’s revenues and EBIT stood at €352.80 million ($382.88 million) and €150.20 million ($163 million), respectively.
For the same quarter, its net profit attributable to holders of ordinary shares and earnings per ordinary share increased 23.2% and 22.5% from the year-ago quarter to €109 million ($118.29 million) and €0.87, respectively.
For the fiscal year ending December 31, 2025, VOPKY’s revenue is expected to increase 2.8% year-over-year to $1.47 billion. Over the past three months, the stock has gained 21.1% to close the last trading session at $39.99.
VOPKY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It is ranked #6 out of 40 stocks in the A-rated Foreign Oil & Gas industry. It has a B grade for Momentum, Stability, and Quality. Click here to see VOPKY’s additional ratings for Growth, Value, and Sentiment.
VAALCO Energy, Inc. (EGY)
EGY is an independent energy company with interests in Gabon, Egypt, Equatorial Guinea, and Canada, focusing on oil and gas exploration, development, and production. Its assets include offshore blocks in Gabon, concessions in Egypt, undeveloped acreage in Equatorial Guinea, and production and working interests in Alberta, Canada.
On March 25, 2024, EGY announced the completion of agreements and gained government approval for the Joint Operating Agreement concerning the Venus-Block P Plan of Development in Equatorial Guinea.
EGY reached a significant milestone in its development plans, including the Front-End Engineering Design study, which has expanded its operational portfolio and solidified its position in Equatorial Guinea's energy sector.
EGY’s trailing-12-month Return on Total Capital of 17.66% is 114.4% higher than the industry average of 8.23%. Its trailing-12-month EBIT margin of 34.92% is 56.4% higher than the industry average of 22.33%. Additionally, its 29.77% trailing-12-month levered FCF margin is 345.2% higher than the 6.69% industry average.
EGY’s revenues for the fourth quarter, which ended December 31, 2023, increased 54.4% year-over-year to $149.15 million. The company’s adjusted income rose 102.9% and 94.7% from the previous year's quarter to $38.99 million and $0.37 per share, respectively. Also, its adjusted EBITDA grew 92.5% year-over-year to $95.88 million.
Analysts expect EGY’s revenue and EPS for the quarter ended March 31, 2024, to grow 41.4% and 257.1% year-over-year to $113.70 million and $0.25, respectively. Shares of EGY have gained 77.9% over the past nine months to close the last trading session at $7.15.
It’s no surprise that EGY has an overall B rating, equating to a Buy in our POWR Ratings system.
It has a B grade for Growth, Value, Sentiment, and Quality. It is ranked #3 out of 83 stocks in the Energy - Oil & Gas industry. Beyond what is stated above, we’ve also rated EGY for Momentum and Stability. Get all EGY ratings here.
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.
EPD shares were trading at $29.37 per share on Friday morning, up $0.15 (+0.51%). Year-to-date, EPD has gained 13.59%, versus a 8.71% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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