The OPEC+ group has imposed deep-set cuts to oil output, seeking to provide “security [and] stability to the energy markets.” Given the existing energy supply constraints, this move should serve as a tailwind for oil prices in the near term.
International Energy Agency (IEA) Executive Director Fatih Birol believes the cuts to be “risky” as the organization still expects a global oil demand growth of close to 2 million bpd this year.
Moreover, the energy sector seems to enjoy significant investor attention. The Energy Select Sector SPDR Fund (XLE) is up 57.5% year-to-date, compared to the 19% decline of the SPDR S&P 500 ETF Trust (SPY) over the same period.
Given this backdrop, some fundamentally strong oil and gas stocks, Marathon Petroleum Corporation (MPC), Valero Energy Corporation (VLO), and APA Corporation (APA), might be solid additions to one’s portfolio.
Marathon Petroleum Corporation (MPC)
MPC operates as an integrated downstream energy company. The company operates through its two segments: Refining & Marketing, which refines crude oil and other feedstocks; and Midstream, which transports, stores, distributes, and markets crude oil and refined products.
MPC’s team turbine optimization project at its Robinson, Illinois refinery recently received recognition from the U.S. Environmental Protection Agency (EPA). This project’s reduction of the refinery’s purchased electricity demand is expected to avoid almost 2,500 metric tons of carbon dioxide-equivalent emissions annually.
On September 21, it was announced that MPC had closed its joint venture with Neste Oyj (NTOIY) for the Martinez renewables project. This project underscores MPC’s commitment to providing low carbon-intensity feedstocks and is expected to create a platform for additional collaboration within renewables.
Total revenues and other income came in at $54.24 billion for the second quarter ended June 30, up 81.8% year-over-year. Adjusted net income attributable to MPC rose significantly from the prior-year quarter to $5.69 billion. Its adjusted income per share stood at $10.61, up considerably from the prior-year period.
For the fiscal third quarter ended September 2022, the consensus EPS estimate of $7.03 indicates an 862.7% improvement year-over-year. For the same quarter, analysts expect revenue to come in at $40.77 billion, representing a 25% improvement year-over-year. MPC has topped consensus EPS estimates in each of the trailing four quarters, which is impressive.
MPC has gained 74.2% year-to-date to close its last trading session at $111.44. The stock has gained 63.4% over the past year.
It’s no surprise that MPC has an overall A rating, which equates to a Strong Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
MPC is also rated an A for Growth, Momentum, and Quality. Within the B-rated Energy – Oil & Gas industry, it is ranked #7 of 94 stocks. To see additional POWR Ratings for Sentiment, Value, and Stability for MPC, click here.
Valero Energy Corporation (VLO)
VLO manufactures, markets, and sells petrochemical products and transportation fuels internationally. The company operates through its three broad segments – Refining; Renewable Diesel; and Ethanol.
On September 26, it was announced that VLO had reduced its debt by approximately $1.25 billion. VLO’s debt was reduced by $3.60 billion, combining this transaction with the debt reduction and refinancing transaction completed earlier.
For the fiscal third quarter ended September 30, adjusted earnings per common share came in at $7.14, up 436.8% year-over-year. Adjusted net income attributable to VLO stockholders increased 413% from its year-ago value to $2.80 billion. Revenues increased 50.6% year-over-year to $44.45 billion.
The consensus revenue estimate of $40.39 billion for the fiscal fourth quarter ending December 2022 indicates a 12.5% year-over-year improvement. The consensus EPS estimate for the same period of $6.53 indicates a 164.4% year-over-year growth.
Moreover, VLO has an impressive surprise earnings history, as it has topped consensus EPS estimates in each of the trailing four quarters.
The stock has gained 56.3% over the past year and 68.8% year-to-date to close its last trading session at $126.80.
VLO’s POWR Ratings reflect a promising outlook. It has an overall rating of B, which translates to Buy in our proprietary rating system.
VLO has an A grade for Momentum and Growth and a B for Quality. In the Energy – Oil & Gas industry, it is ranked #8.
Beyond what has been discussed above, we have also given VLO grades for Sentiment, Value, and Stability. Click here to see all of VLO’s ratings.
APA Corporation (APA)
APA explores, develops, and produces crude oil and gas properties. The company operates in the United States, Egypt, and the United Kingdom and carries out exploration activities offshore in Suriname.
In September, APA announced an increase in its common shares dividend to an annualized rate of $1.00 per share. The next quarterly dividend is payable on November 22. The company also declared a further 40 million shares of additional share repurchase authorization. This reflects on its shareholder return ability.
In August, APA announced an oil discovery offshore Suriname at Baja-1 in Block 53. John J. Christmann, APA CEO and president, said, “This result confirms our geologic model for the Campanian in the area and helps to de-risk other prospects in the southern portion of both Blocks 53 and 58.”
In the fiscal second quarter that ended June 30, APA’s revenues and other increased 71.3% year-over-year to $3.05 billion. Adjusted earnings after tax and adjusted EPS came in at $811 million and $2.37, up 204.9% and 238.6% from their respective year-ago values.
Analysts expect revenue and EPS for the fiscal third quarter (ended September 2022) to come in at $2.35 billion and $1.78, reflecting 42.5% and 81.9% year-over-year improvements, respectively.
Over the past year, APA’s stock has gained 60.2%. It has gained 68.1% year-to-date to close its last trading session at $45.20.
APA’s strong fundamentals are reflected in its POWR Ratings. APA's overall B rating equates to a Buy in our POWR Ratings system.
APA has an A grade for Quality and Momentum and a B for Value and Growth. It is ranked #13 in the Energy – Oil & Gas industry. Click here to see the additional POWR Ratings for Stability and Sentiment for APA.
MPC shares were trading at $113.76 per share on Wednesday afternoon, up $2.32 (+2.08%). Year-to-date, MPC has gained 81.27%, versus a -17.64% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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