The oil and gas sector prospects appear promising, owing to the heightened geopolitical tensions, anticipated output cuts, and rising demand for crude oil and natural gas.
Amid this backdrop, investors could consider buying fundamentally strong oil and gas stocks such as Cheniere Energy Partners, L.P. (CQP), Pembina Pipeline Corporation (PBA), and Western Midstream Partners, LP (WES). Before diving deeper into the fundamentals of these stocks, let’s discuss what’s shaping the oil and gas industry’s prospects.
The possibility of tensions spreading in the Middle East, recent Ukraine drone attacks on Russian refineries leading to suspension of operations, an export cut by Mexican oil giant Pemex, and the likelihood that OPEC+ will likely extend production cuts in June could tighten oil and gas supplies. The World Bank has stated that oil prices could surge to $100 due to ongoing tensions in the Middle East.
Meanwhile, anticipations of interest rate cuts later this year and a fast-recovering Chinese economy mean global demand for oil and gas is expected to rise. The EIA has raised its global oil consumption forecasts by 0.4 million bpd to 102.91 million bpd for 2024 and by 0.5 million bpd to 104.26 million bpd for 2025.
Meanwhile, OPEC expects world oil demand to increase by 2.25 million bpd in 2024 and by 1.85 million bpd in 2025. According to the EIA’s Short-Term Energy Outlook, the U.S. dry gas production to average about 103 billion cubic feet per day from April to October.
Moreover, driven by its wide range of applications, global gas demand is projected to grow between 10% and 15% until 2035. The U.S. oil and gas market is expected to grow at a CAGR of over 4% by 2029.
Considering these factors, let’s examine the fundamentals of the abovementioned oil and gas stocks.
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.
CQP’s trailing-12-month EBITDA margin of 41.83% is 98.9% higher than the industry average of 21.03%. Its trailing-12-month Return on Total Capital and Return on Total Assets of 15.56% and 17.15% are 92.5% and 169% higher than the industry averages of 8.08% and 6.38%, respectively.
CQP’s total revenues and income from operations for the fiscal first quarter that ended March 31, 2024, stood at $2.30 billion and $875 million, respectively. Its adjusted EBITDA stood at $1 billion. In addition, CQP’s net income and net income per common unit stood at $682 million and $1.18, respectively.
Analysts expect CQP’s revenue and EPS for the quarter ending June 30, 2024, to increase 8.6% and 22.6% year-over-year to $2.10 billion and $1, respectively. Over the past month, the stock has gained 1.1%, closing the last trading session at $50.75.
CQP’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
It has an A grade for Momentum and a B for Sentiment and Quality. It is ranked #11 out of 24 stocks in the A-rated MLPs - Oil & Gas industry. To see the additional POWR Ratings of CQP for Growth, Value, and Stability, click here.
Pembina Pipeline Corporation (PBA)
Headquartered in Calgary, Canada, PBA provides energy transportation and midstream services. It operates through three segments: Pipelines, Facilities, and Marketing & New Ventures.
On April 1, 2024, PBA announced that it completed the acquisition of Enbridge’s interest in the Alliance, Aux Sable, and NRGreen joint ventures. This acquisition will grow and strengthen PBA’s existing franchise and provide greater exposure to resilient end-use markets.
PBA’s trailing-12-month net income margin and levered FCF margin of 19.46% and 11.52% are 62.6% and 77.1% higher than the industry averages of 11.97% and 6.50%, respectively. Likewise, its 23.10% trailing-12-month EBIT margin is 9.9% higher than the 21.03% industry average.
For the fiscal fourth quarter that ended December 31, 2023, PBA’s net revenue and adjusted EBITDA stood at CAD1.12 billion ($816.13 million) and CAD1.03 billion ($754.76 million), up 7.1% and 11.7% year-over-year, respectively. Its earnings and earnings per common share increased 187.2% and 210.3% from the year-ago value to CAD698 million ($509.99 million) and CAD1.21, respectively.
Street expects PBA’s revenue for the quarter ending September 30, 2024, to increase 18.3% year-over-year to $1.97 billion. Its FFO for the year ending fiscal 2024 is expected to grow 7.8% year-over-year to $4.01. The stock has gained 16.4% over the past nine months to close the last trading session at $35.51.
PBA’s POWR Ratings reflect its positive prospects. It has an overall B rating, equating to Buy in our proprietary rating system.
PBA has an A grade for Momentum and a B for Stability and Sentiment. Within the A-rated Foreign Oil & Gas industry, it is ranked #19 out of 41 stocks. Click here for the additional POWR Ratings for PBA (Growth, Value, and Quality).
Western Midstream Partners, LP (WES)
WES operates as a midstream energy company primarily in the U.S. The company is involved in gathering, compressing, treating, processing, and transporting natural gas; gathering, stabilizing, and transporting condensate, natural gas liquids (NGLs), and crude oil; and gathering and disposing of produced water.
WES’ trailing-12-month CAPEX / Sales of 23.67% is 53.7% higher than the industry average of 15.40%. Its trailing-12-month gross profit margin and EBIT margin of 70.15% and 41.51% are 50.7% and 97.4% higher than the industry averages of 46.55% and 21.03%, respectively.
WES’s total revenues and other for the fiscal fourth quarter that ended December 31, 2023, increased 10.1% year-over-year to $858.21 million. Its free cash flow stood at $282.04 million, up 40.7% quarter-over-quarter. For the same quarter, its net income attributable to WES and net income per common unit stood at $288.35 million and $0.74, respectively.
For the quarter that ended March 31, 2024, WES’ revenue and EPS are expected to increase 20.1% and 53.2% year-over-year to $881.18 million and $0.80, respectively. Over the past year, the stock has gained 37.8% to close the last trading session at $35.53.
WES’ POWR Ratings reflect this promising outlook. It has an overall rating of B, equating to Buy in our proprietary rating system.
WES has an A grade for Momentum and a B for Growth, Stability, and Quality. Within the MLPs - Oil & Gas industry, it is ranked #12. In total, we rate WES on eight different levels. Beyond what we stated above, we also have given WES grades for Value and Sentiment. Get all the WES ratings here.
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CQP shares were trading at $50.34 per share on Monday morning, down $0.41 (-0.81%). Year-to-date, CQP has gained 3.18%, versus a 8.49% rise in the benchmark S&P 500 index during the same period.
About the Author: Neha Panjwani
From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance.
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