The future of the energy industry appears bright due to rising global energy demands from population growth, industrialization, economic development, and increased use of energy-intensive technologies. Additionally, traditional energy sources like the oil and gas industry continue to have a solid long-term outlook despite the ongoing shift towards renewable energy.
Amid this backdrop, it could be wise to add fundamentally strong energy stocks Valero Energy Corporation (VLO), HF Sinclair Corporation (DINO), and Newpark Resources, Inc. (NR) to one’s watchlist.
Before diving deeper into the fundamentals of these stocks, let's discuss what’s shaping the energy industry’s prospects.
Oil prices have remained rangebound amid worries over reduced demand from China and slower global economic expansion. Nevertheless, they're anticipated to increase this year due to expectations of crude oil production cuts by the U.S. this year, the possibility of the extension of supply cuts by OPEC+, and rising tensions in the Middle East, fostering a positive outlook for the industry.
The outlook for the oil futures looks bright after the U.S. Energy Information Administration (EIA) cut its forecast for domestic oil growth this year by 120,000 barrels per day (bpd) to 170,000 bpd, significantly lower than last year’s output increase of 1.02 million bpd. The EIA had previously projected that crude production would rise by 290,000 bpd this year.
Oil demand is expected to rise faster than expected due to the easing of inflation. The IMF raised its global economic growth outlook, upgrading the outlook for both the United States and China. Moreover, OPEC+ has output cuts of 2.2 million bpd in place for the first quarter, and Saudi Arabia has said that the curbs could be extended further if required.
World oil demand is set to reach a record 103 million barrels per day this year. Furthermore, oil prices could get a boost this year as Iran-backed Houthis continue to attack shipping, leaving the Red Sea treacherous. OPEC, in its January Monthly Oil Market Report, anticipates oil demand to grow by 2.25 million barrels per day this year and 1.8 million bpd next year.
The IEA forecasts global oil demand growth to come in at 2.2 million barrels per day (bpd) this year and 1.8 million bpd in 2025, driven by worldwide economic growth and strong activity in China.
Moreover, given the reliance on oil, energy firms offering services in drilling, evaluation, production, and maintenance are poised for success. The global oilfield services market is anticipated to thrive and is projected to achieve a CAGR of 6.6%, reaching $346.45 billion by 2027.
Considering these conducive trends, let’s analyze the fundamental aspects of the featured energy stocks.
Valero Energy Corporation (VLO)
VLO manufactures, markets, and sells transportation fuels and petrochemical products internationally. It operates through three segments: Refining, Renewable Diesel, and Ethanol.
In terms of the trailing-12-month Return on Common Equity, VLO’s 35.67% is 83.7% higher than the 19.42% industry average. Likewise, its 19.08% trailing-12-month Return on Total Capital is 112.6% higher than the industry average of 8.97%. Additionally, the stock’s 2.37x trailing-12-month asset turnover ratio is 332% higher than the industry average of 0.55x.
VLO’s revenues for the third quarter ended September 30, 2023, came in at $38.40 billion. Likewise, its operating income came in at $3.50 billion. The company’s adjusted net income attributable to VLO stockholders stood at $2.62 billion. In addition, its adjusted earnings per common rose 4.9% over the prior-year quarter to $7.49.
Street expects VLO’s revenue for the quarter ending June 30, 2024, to increase 2.7% year-over-year to $35.45 billion. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 31.9% to close the last trading session at $141.18.
VLO’s POWR Ratings reflect its solid prospects. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #9 out of 82 stocks in the Energy – Oil & Gas industry. It has a B grade for Value, Momentum, and Quality. Click here to see the other ratings of VLO for Growth, Stability, and Sentiment.
HF Sinclair Corporation (DINO)
DINO operates as an independent energy company. It produces and markets gasoline, diesel fuel, jet fuel, renewable diesel, specialty lubricant products, specialty chemicals, specialty and modified asphalt, and others.
On December 1, 2023, DINO completed its acquisition of all outstanding common units in Holly Energy Partners, L.P. (HEP) not already owned. HEP Common Units are no longer listed on the NYSE, ceasing to be publicly traded.
DINO’s CEO Tim Go expressed gratitude to HEP unitholders, emphasizing the transaction's role in advancing HF Sinclair's strategy of integrating assets.
In terms of the trailing-12-month levered FCF margin, DINO’s 7.07% is 22.8% higher than the 5.75% industry average. Likewise, its 11.84% trailing-12-month Return on Total Assets is 62.8% higher than the industry average of 7.28%. Additionally, the stock’s 1.79x trailing-12-month asset turnover ratio is 226.2% higher than the industry average of 0.55x.
For the third quarter that ended on September 30, 2023, DINO’s total consolidated sales and other revenues came in at $8.91 billion. Its adjusted net income attributable to DINO and adjusted net EPS stood at $760.44 million and $4.06, respectively. Moreover, the company’s adjusted EBITDA for the period came in at $1.21 billion.
DINO has surpassed Street EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has gained 48.9% to close the last trading session at $57.15.
DINO’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has a B grade for Value, Momentum, and Quality. It is ranked #10 in the same industry. To see DINO’s Growth, Stability, and Sentiment ratings, click here.
Newpark Resources, Inc. (NR)
NR provides products, rentals, and services primarily to the oil and natural gas exploration and production (E&P) industry. It operates through two segments: Fluids Systems and Industrial Solutions.
In terms of the trailing-12-month levered FCF margin, NR’s 13.86% is 141% higher than the 5.75% industry average. Likewise, the stock’s 1.13x trailing-12-month asset turnover ratio is 105.5% higher than the industry average of 0.55x.
NR’s revenues for the fiscal third quarter that ended September 30, 2023, came in at $198.50 million. Its adjusted net income rose 59.5% year-over-year to $8.35 million, and its adjusted EPS came in at $0.09, representing an increase of 50% year-over-year. In addition, the company’s adjusted EBITDA increased 13.5% over the prior-year quarter to $22.26 million.
Street expects NR’s EPS for the quarter ended December 31, 2023, to increase 14.3% year-over-year to $0.08. It surpassed the consensus EPS estimates in three of the four trailing quarters. Over the past nine months, the stock has gained 54.6% to close the last trading session at $6.06.
NR’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Sentiment and a B grade for Value and Momentum. Within the Energy - Services industry, it is ranked #8 out of 51 stocks. In total, we rate NR on eight different levels. Beyond what we stated above, we also have given NR grades for Growth, Stability, and Quality. Get all the NR ratings here.
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VLO shares were trading at $141.44 per share on Thursday afternoon, up $0.26 (+0.18%). Year-to-date, VLO has gained 9.63%, versus a 4.66% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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