Energy prices climbed significantly in the first quarter of 2022, driven by solid demand and supply-side constraints exacerbated by Russia’s invasion of Ukraine. However, recently, oil and gas prices have retreated from their peaks. Factors, including global recession fears, have led to a steady price decline.
However, with supply constraints due to turbulent geopolitics and extreme weather events acting to keep demand robust, global energy consumption is expected to grow by 1.3% in 2023 as many countries use fossil fuels to manage their energy transition.
Besides, energy demand is expected to grow in the long run due to increased economic activity and the effects of climate change. The global energy as a service market is projected to grow at a 10.3% CAGR to reach $144 billion by 2028.
Thus, fundamentally sound energy stocks PrimeEnergy Resources Corporation (PNRG), Epsilon Energy Ltd. (EPSN), and Adams Resources & Energy, Inc. (AE) could be ideal investments to capitalize on their potential upsides.
PrimeEnergy Resources Corporation (PNRG)
As an independent oil and gas company, PNRG acquires, develops, and produces oil and natural gas. The company also provides well-servicing support operations, site preparation, and construction services for oil and gas drilling and reworking operations for its own operations and as a contractor to third parties as well.
During the third quarter of the fiscal, which ended September 30, 2022, PNRG’s revenues increased 129.1% year-over-year to $39.65 million. During the same period, the company’s net income came in at $13.15 million or $4.88 per share, compared to a loss of $1.16 million or $0.58 per share during the previous-year quarter.
PNRG’s total assets stood at $212.90 million as of September 30, 2022, compared to $210.91 million as of December 31, 2021.
PNRG’s stocks have gained 6.8% over the past month and 13.8% over the past six months to close the last trading session at $90.85, higher than its 50-day and 200-day moving averages of $83.24 and $82.07.
Despite the uptrend, PNRG is currently trading at 7.05x and 1.36x its trailing-12-month earnings and book value, 15.5% and 25.4% lower than the respective industry averages of 8.34x and 1.82x. This indicates further upside potential for the stock.
PNRG’s POWR Ratings reflect this promising outlook. The company has an overall rating of A, which translates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
PNRG is also rated A for both Quality and Momentum. It has a B grade for Growth and Sentiment. Unsurprisingly, it tops the list of 92 stocks in the B-rated Energy - Oil & Gas industry.
Click here for additional POWR Ratings for Value and Stability for PNRG.
Epsilon Energy Ltd. (EPSN)
EPSN is involved in onshore production and midstream operations with a focus on the Marcellus Shale of Pennsylvania. The company is engaged in acquiring, developing, gathering, and producing natural gas and oil reserves and operates through three segments: Upstream, Gathering System, and Corporate.
On December 30, 2022, EPSN paid its quarterly dividend of $0.06 per common share. The company pays $0.25 annually as dividends which translates to a yield of 4.21% at the current price.
During the third quarter of the fiscal, which ended September 30, 2022, EPSN’s total revenues increased 62.2% year-over-year to $21.24 million, driven by a strong market for natural gas coupled with the higher-than-forecasted Koromlan 107HC well results. During the same period, the company’s adjusted EBITDA increased 143.7% year-over-year to $16.54 million.
As a result, EPSN’s net comprehensive income came in at $9.57 million or $0.42 per share, compared to $1.40 million or $0.06 per share during the previous-year quarter.
EPSN’s stock has gained 3.9% over the past year to close the last trading session at $5.94. It is currently trading at 4.10x and 1.42x its trailing-12-month earnings and book value, 50.9% and 21.7% lower than the respective industry averages of 8.34x and 1.82x. This indicates further upside potential for the stock.
EPSN’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It has an A grade for Momentum and Quality and a B for Value and Sentiment.
EPSN is ranked #2 of 92 stocks in the Energy - Oil & Gas industry.
Click here to see the additional POWR Ratings for EPSN’s Growth and Stability.
Adams Resources & Energy, Inc. (AE)
AE is primarily involved in the marketing, transportation, terminal ling, and storage of the various crude oil and natural gas basins in the United States. The company operates through three segments: Crude Oil Marketing, Transportation, and Storage; Tank truck Transportation of Liquid Chemicals, Pressurized Gases, Asphalt, and Dry Bulk; and Pipeline Transportation, Terminalling, and Storage of Crude Oil.
On December 16, AE paid its quarterly cash dividend of $0.24 per common share. The company pays $0.96 annually as dividends, which translates to a yield of 1.92% at the current price. Dividend payouts have grown at 1.8% CAGR over the past five years.
On November 1, AE announced the repurchase of all of the shares of AE common stock owned by KSA Industries, Inc., the company’s largest stockholder, and members of the family of the late Kenneth Stanley Adams, Jr., the company’s founder, who are affiliated with KSA.
With this transaction, AE made a significant return of capital to its existing shareholders and increased the intrinsic value of their stake in the company.
For the fiscal 2022 third quarter ended September 30, AE’s total revenues increased 50.1% year-over-year to $852.90 million. The company’s operating earnings rose 30.1% from the year-ago value to $2.99 million. In addition, its adjusted net earnings came in at $4.71 million or $1.06 per share, up 168.6% and 158.5% year-over-year, respectively.
Analysts expect AE’s revenue for the fiscal year 2022 (ended December 2022) to come in at $3.46 billion, representing a 70.4% rise from the last year. Also, Street expects the company’s EPS for the same period to come in at $3.37, representing an increase of 22.6% year-over-year. It is expected to increase by 19% to $4.01 during this fiscal year.
AE’s stock has gained 22.1% over the past month and 57.9% over the past six months to close the last trading session at $50.05. It is currently trading at 1.30x its trailing-12-month book value, 28.5% lower than the respective industry average of 1.82x.
AE's overall rating of B translates to a Buy in our POWR Ratings system. It has an A grade for Momentum and Sentiment and a B for Quality and Value.
AE is ranked #5 in the same industry. Get additional ratings for AE’s Growth and Stability here.
PNRG shares were trading at $91.99 per share on Friday afternoon, up $1.14 (+1.25%). Year-to-date, PNRG has gained 5.89%, versus a 3.47% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
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