Oil prices have endured wild swings since Russia invaded Ukraine. Although oil and gas prices retreated from their peaks in recent months due to macroeconomic uncertainties caused by inflation and high-interest rates, the energy sector is expected to stay afloat due to strong demand for oil and gas.
Below I have discussed some of the quality energy stocks, including North American Construction Group Ltd. (NOA), Ranger Energy Services, Inc. (RNGR), and Graham Corporation (GHM), that possess enormous growth potential.
The International Energy Agency (IEA) revised its forecast for this year’s world oil demand growth by 2.2 mb/d, with China’s stronger-than-expected rebound. China’s demand recovery continues to surpass expectations, setting an all-time record in March at 16 mb/d.
According to the Organization of the Petroleum Exporting Countries (OPEC) monthly report, global oil demand will rise by 2.35 million bpd, or 2.4% this year. It expects Chinese oil demand to grow by 840,000 bpd in 2023, up from last month’s forecast of 800,000 bpd, adding to a recovery after strict COVID-19 containment measures were scrapped.
On top of it, OPEC+ has reached an agreement to extend output cuts into next year after announcing a surprise oil production cut in April, which could elevate oil prices in the near term. In addition, the global energy as a service market is expected to expand at a CAGR of 15.1% to reach $212.60 billion by 2028.
The energy sector has immense potential to grow and expand in the coming years. Additionally, the sector’s resilience is evident from the Energy Select Sector SPDR Fund’s (XLE) 9.4% gains over the past month. With that in mind, let’s take a look at the fundamentally sound energy stocks to consider for your portfolio.
North American Construction Group Ltd. (NOA)
Headquartered in Acheson, Canada, NOA engages in providing equipment maintenance and a range of mining and heavy construction services to customers in the resource development and industrial construction sectors. The company's operating divisions include Heavy Construction and Mining; and Equipment Maintenance Services.
On April 25, the company’s Board of Directors declared a quarterly dividend of $0.10 per common share, payable to its common shareholders on July 7, 2023. NOA’s four-year average dividend yield is 1.27%, and its forward annual dividend translates to a 1.55% yield on current prices. Its dividends have grown at 30.8% and 33.6% CAGRs over the past three and five years, respectively.
NOA’s trailing-12-month ROCE of 24.56% is 3.3% higher than the 23.77% industry average. Likewise, its trailing-12-month asset turnover ratio of 0.91x compares to the industry average of 0.65x.
NOA’s revenues increased 37.3% year-over-year to $242.61 million in the first quarter (ended March 31, 2023), while its gross profit improved 86.4% from the year-ago value to $40.92 million.
The company’s adjusted net earnings amounted to $25.28 million and $0.96, representing increases of 73.1% and 88.2% from the prior-year quarter, respectively. Also, its adjusted EBITDA stood at $84.62 million, up 46.6% year-over-year.
NOA’s EBITDA and net income have increased at CAGRs of 4.6% and 15.8%, respectively, over the past three years, while its EPS has grown at a 13.8% CAGR.
Street expects NOA’s EPS for the second quarter (ending June 30, 2023) to increase 134.5% year-over-year to $0.31. Its revenue estimate of $131.90 million for the ongoing quarter is expected to increase marginally year-over-year. Moreover, it surpassed the EPS estimates in three of the trailing four quarters.
Over the past nine months, the stock has gained 56.5% to close the last trading session at $18.89.
NOA’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. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It also has a B grade for Growth, Momentum, Stability, and Quality. Among the 45 stocks in the Energy - Services industry, it is ranked #2. Click here to see the other ratings of NOA for Value and Sentiment.
Ranger Energy Services, Inc. (RNGR)
RNGR provides onshore high-specification well service rigs, wireline services, and additional processing solutions and ancillary services in the United States. Its segments include High Specification Rigs; Wireline Services; and Processing Solutions and Ancillary Services.
On May 31, RNGR closed a new asset-based lending facility with Wells Fargo Bank, N.A, as administrative agent and sole lender. The facility includes $75 million of committed liquidity and features an accordion that allows for potential expansion of up to $150 million to support future growth opportunities.
According to the terms of the agreement, with a tenor of five years, the facility will provide the company with more financial flexibility and support for its strategic initiatives.
RNGR’s trailing-12-month levered FCF margin of 6.82% is 17.8% higher than the 5.79% industry average. Also, its trailing-12-month asset turnover ratio of 1.67x compares to the industry average of 0.65x.
In the fiscal first quarter that ended March 31, 2023, RNGR’s revenue increased 27.4% year-over-year to $157.50 million. Its operating and net incomes came in at $9.20 million and $6.20 million compared to the year-ago losses of $5.20 million and $5.70 million, respectively.
The company’s income per share amounted to $0.25 versus a loss per share of $0.31 in the prior-year period. Also, its adjusted EBITDA stood at $20.10 million, reflecting a 109.4% improvement year-over-year.
Over the past three years, RNGR’s revenue and EBIT have grown at 24.9% and 45.8% CAGRs, respectively. Moreover, its net income has improved at 174.9% CAGR over the same period.
The consensus revenue estimate of $167.65 million for the second quarter (ending June 30, 2023) represents a 9.2% increase year-over-year. The consensus EPS estimate of $0.28 for the current quarter indicates a 607.6% improvement from the same period last year. In addition, the company surpassed the revenue estimates in three of the trailing four quarters.
The stock has gained 16.2% over the past nine months to close the last trading session at $11.60.
RNGR’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which translates to a Strong Buy in our proprietary rating system.
It has a B grade for Growth, Value, Momentum, and Sentiment. Within the same industry, it is ranked first. To see additional POWR Ratings of RNGR for Stability and Quality, click here.
Graham Corporation (GHM)
GHM is engaged in the design and manufacture of fluid, power, heat transfer, and vacuum equipment for the chemical and petrochemical, defense, space, energy, and process industries. Its Graham Manufacturing and Barber-Nichols global brands are built upon engineering expertise in vacuum and heat transfer, cryogenic pumps, and turbomachinery technologies.
On April 6, GHM was granted a follow-on $23 million order to provide engineered products for the MK48 Mod 7 Heavyweight Torpedo program.
Daniel J. Thoren, President and CEO, commented, “We believe the combination of our engineering know-how, highly skilled workforce, and precision machining and manufacturing expertise enabled us to win this follow-on contract award. We have made significant investments to provide the high quality and reliability required to supply these critical components for the U.S. Navy and other foreign militaries.”
On February 22, the company was awarded a multi-million-dollar renewable energy vacuum system for the Hell’s Kitchen Stage 1 Project in the Imperial Valley of California. This order of new energy vacuum systems for geothermal power and lithium production reflects its near-term growth prospects through diversification and the opportunity to contribute to a sustainable energy supply.
In terms of trailing-12-month levered FCF margin, GHM’s 7.01% is 34.5% higher than the industry average of 5.21%. Also, its trailing-12-month asset turnover ratio of 0.81x is marginally higher than the industry average of 0.80x.
GHM’s total revenues increased 27.9% year-over-year to $157.12 million in the fiscal year (ended March 31, 2023), while its gross profit improved by 178.3% from the year-ago value to $25.41 million. Its adjusted EBITDA came in at $7.74 million compared to an EBITDA loss of $5 million in the same period last year.
The company’s non-GAAP net income amounted to $2.52 million and $0.24 per share, versus an adjusted net loss of $6.58 million and $0.62 per share, respectively, in the prior year.
The stock’s revenue and EBITDA have grown at CAGRs of 20.1% and 28.2% over the past three years, respectively. Likewise, its total assets have grown at an 11.3% CAGR in the same period.
Analysts expect GHM’s revenue for the second quarter (ending September 2023) to increase 9.9% year-over-year to $41.93 million, while its EPS is expected to be $0.03 in the same period. Moreover, it surpassed the revenue estimates in each of the trailing four quarters, which is excellent.
GHM’s shares have gained 40.7% over the past year to close the last trading session at $13.
It’s no surprise that GHM has an overall rating of B, which equates to Buy in our proprietary rating system. It has an A grade for Momentum and Sentiment and a B for Growth and Value. Out of 45 stocks in the same industry, it is ranked #3.
In addition to the POWR Ratings stated above, we also have GHM’s ratings for Stability and Quality. Get all GHM ratings here.
Is the Bear Market Over?
Investment pro Steve Reitmeister sees signs of the bear market’s return. That is why he has constructed a unique portfolio to not just survive that downturn...but even thrive!
Steve Reitmeister’s Trading Plan & Top Picks >
NOA shares were trading at $19.32 per share on Tuesday afternoon, up $0.43 (+2.28%). Year-to-date, NOA has gained 45.70%, versus a 14.68% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
3 Energy Stocks With Enormous Growth Potential StockNews.com
