Forecasts for this year are pointing toward strong demand in the energy sector. Moreover, escalating geopolitical tensions in the Middle East and the Russia-Ukraine war could disrupt oil supplies, leading to increased market volatility and potentially higher oil prices.
Given the backdrop, it could be an opportune time to load up the shares of three fundamentally solid energy companies, Enterprise Products Partners L.P. (EPD), Cheniere Energy Partners, L.P. (CQP), and ChampionX Corporation (CHX). However, before we dig deeper into the fundamentals of these stocks, let’s briefly examine the industry prospects.
Despite the increasing focus on renewable energy, global demand for oil remains strong. The International Energy Agency (IEA) anticipates that global oil consumption will surge by 1.24 million barrels per day (bpd) in 2024, up 180,000 bpd from its previous projection.
This marks the third consecutive upward adjustment in the IEA's forecast, fueled by the improvement in global economic growth and the expansion of China's petrochemicals sector. On the other hand, OPEC projects a 2.25 million bpd uptick in global oil demand for 2024, with another 1.80 million bpd surge anticipated for 2025, primarily attributed to the strengthening Chinese economy.
Meanwhile, oil prices soared this week following escalating conflicts in Gaza, with significant Israeli military assaults. Josep Borrell, European Union foreign policy chief, suggests that Israel's efforts to eliminate Hamas are encountering difficulties, highlighting the importance of a two-state solution as the most viable path toward peace.
On top of it, oil prices faced further upward pressure due to heightened tensions in the Russia-Ukraine conflict. A drone attack on a Russian fuel export terminal operated by Novatek in the Baltic Sea caused a fire, leading to the shutdown of operations and elevated oil prices.
Given the favorable industry outlook, adopting a bullish stance on the shares of EPD, CQP, and CHX might be advantageous. With that being said, let’s examine the fundamentals of the featured energy stocks in detail:
Enterprise Products Partners L.P. (EPD)
EPD provides midstream energy services to producers and consumers of natural gas, Natural Gas Liquids (NGLs), 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, 2024, EPD declared a quarterly distribution of $0.52 per unit, payable to its unitholders on February 14, 2024. The company’s annual dividend of $2.06 translates to a 7.61% yield on the prevailing prices, while its four-year average dividend yield is 8.08%.
Its dividend payouts have grown at CAGRs of 3.6% and 2.9% over the past three and five years, respectively. Also, EPD has a record of 25 years of consecutive dividend growth.
EPD’s trailing-12-month levered FCF margin of 6.36% is 8.4% higher than the 5.86% industry average. Likewise, its trailing-12-month asset turnover ratio of 0.71x is 27.6% higher than the industry average of 0.55x.
For the fiscal third quarter, which ended on September 30, 2023, EPD’s revenues and operating income stood at $12 billion and $1.70 billion, respectively. Moreover, its adjusted EBITDA increased 3.1% from the year-ago value to $2.33 billion.
During the same quarter, its net income attributable to common unitholders and earnings per common unit came in at $1.32 billion and $0.60, respectively. Also, the company’s total current assets stood at $11.43 billion, up 7.8% compared to $10.60 billion as of December 31, 2022.
Analysts predict EPD’s EPS for the fiscal fourth quarter (ended December 2023) to increase 6.6% year-over-year to $0.69, while its revenue for the same quarter is expected to be $12.28 billion.
Over the past month, EPD’s shares have gained 3.9% to close the last trading session at $27.12.
EPD’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, translating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Value, Momentum, and Stability. In the 25-stock A-rated MLPs - Oil & Gas industry, it is ranked #6. Click here to see EPD’s ratings for Growth, Sentiment, and Quality.
Cheniere Energy Partners, L.P. (CQP)
CQP provides Liquefied Natural Gas (LNG) to integrated energy companies, utilities, and energy trading companies worldwide. It owns and operates a natural gas liquefaction and export facility at the Sabine Pass LNG production terminal located in Cameron Parish, Louisiana.
On November 14, 2023, CQP paid its unitholders a quarterly distribution of $1.03 per common unit. The company’s annual dividend of $3.10 translates to a 6% yield on the prevailing prices, while its four-year average dividend yield is 7.25%.
Its dividend payouts have grown at CAGRs of 6.5% and 7.2% over the past three and five years, respectively. Also, CQP has a record of seven years of consecutive dividend growth.
CQP’s trailing-12-month levered FCF margin of 31.87% is 443.4% higher than the 5.86% industry average. Likewise, its trailing-12-month net income margin of 50.08% is 276.5% higher than the industry average of 13.30%. Furthermore, the stock’s trailing-12-month EBIT margin of 57.24% is 166.4% higher than the industry average of 21.49%.
In the fiscal third quarter, which ended on September 30, 2023, CQP’s total revenues amounted to $2.13 billion. Its income from operations stood at $988 million, compared to a loss from operations of $299 million in the year-ago quarter.
Moreover, the company’s net income and net income per common unit came in at $791 million and $1.19 versus a net loss and net loss per common unit of $514 million and $1.49 in the prior-year quarter, respectively.
Street expects CQP’s revenue and EPS for the fiscal fourth quarter (ended December 2023) to come in at $2.45 billion and $1.07, respectively.
The stock has gained 1.2% over the past month to close the last trading session at $51.65.
CQP’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It has a B grade for Value, Momentum, and Quality. Within the same MLPs - Oil & Gas industry, it is ranked #7. Click here to see the other ratings of CQP for Growth, Stability, and Sentiment.
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, 2023, CHX declared a quarterly dividend of $0.09 per share, payable to its shareholders on January 26, 2024. The company’s annual dividend of $0.34 translates to a 1.22% yield on the prevailing prices, while its four-year average dividend yield is 0.39%.
CHX’s trailing-12-month levered FCF margin of 13.05% is 122.5% higher than the 5.86% industry average. Likewise, its trailing-12-month asset turnover ratio of 1.13x is 104.9% higher than the industry average of 0.55x. Furthermore, the stock’s trailing-12-month cash per share of $1.46 is 58.4% higher than the industry average of $0.92.
For the fiscal third quarter, which ended on September 30, 2023, CHX’s revenue amounted to $939.78 million, while its gross profit grew 48.5% year-over-year to $291.86 million.
Moreover, the company’s attributable adjusted net income and EPS came in at $80.95 million and $0.41, up 19.3% and 24.2% from the prior-year quarter, respectively. Also, its adjusted EBITDA grew 14.1% from the year-ago value to $189.54 million.
Analysts expect CHX’s EPS for the fiscal fourth quarter (ended December 2023) to increase 1.8% year-over-year to $0.44, while its revenue for the same quarter is expected to be $947.33 million. Additionally, the company topped its EPS estimates in three of the trailing four quarters, which is promising.
CHX’s shares gained marginally intraday to close the last trading session at $27.82.
It’s no surprise that CHX has an overall rating of B, which equates to Buy in our proprietary rating system. It has a B grade for Momentum and Quality. Out of 51 stocks in the Energy - Services industry, it is ranked #8.
In addition to the POWR Ratings we’ve stated above, we also have CHX’s ratings for Growth, Value, Stability, and Sentiment. Get all CHX ratings here.
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EPD shares were trading at $27.08 per share on Thursday morning, down $0.04 (-0.15%). Year-to-date, EPD has gained 2.77%, versus a 2.56% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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