Last week, oil prices increased by 3% as geopolitical tensions in the Middle East and optimism about potential U.S. Federal Reserve interest rate cuts continued to propel oil prices. On top of it, the International Energy Agency (IEA) forecasts a faster-than-expected rise in global oil demand in 2024, attributing it to an improved U.S. GDP outlook.
So, I think quality energy stocks Baker Hughes Company (BKR), Sasol Limited (SSL), and CrossAmerica Partners LP (CAPL) could be solid buys. These companies also pay stable dividends.
According to S&P Global Community insights, the United States has become the largest oil producer in history, achieving record levels of crude and condensate output at 13.3 million barrels per day and a total of 21.4 million barrels per day for all liquids. This surge in production surpasses the historical output of any other country.
The stabilization of production prices not only has the potential to steady oil prices but also may contribute to an increased demand for oil within the country.
Besides, despite the COP28 agreement to transition away from fossil fuels, the International Energy Agency (IEA) forecasts a faster-than-expected rise in world oil demand next year. The IEA anticipates a consumption increase of 1.1 million barrels per day in 2024, up by 130,000 bpd from its previous projection, citing an improved outlook for the United States and lower oil prices.
The IEA attributes the upward revision to an improved GDP outlook, particularly in the U.S., where a soft landing is anticipated.
Furthermore, the oilfield equipment and services market is driven by increasing shale gas extraction, facilitated by technological advancements. Additionally, rising production and exploration activities in the oil and gas industry, fueled by growing energy demand and lucrative investments, contribute to market expansion.
The global oilfield services market is projected to reach $346.45 billion by 2027, expanding at a CAGR of 6.6%.
Considering the favorable trends in the industry, it is opportune to analyze the foundational aspects of the three stocks in the energy sector.
Baker Hughes Company (BKR)
BKR provides a portfolio of technologies and services to energy and industrial value chains worldwide. It operates through the Oilfield Services & Equipment (OFSE) and Industrial & Energy Technology (IET) segments.
In November, BKR distributed a quarterly cash dividend amounting to $0.20 per share of Class A common stock. The company’s annualized dividend rate of $0.80 per share results in a dividend yield of 2.34% on the prevailing share price.
BKR's dividend payments have grown at a CAGR of 2.7% over the past three years. Notably, the company has a track record of 34 consecutive years of paying dividends.
BKR’s revenue and adjusted operating income increased 23.7% and 42.3% year-over-year to $6.64 billion and $716 million, respectively, in the fiscal third quarter that ended September 30, 2023. Adjusted net income attributable to BKR stood at $427 million and $0.42 per share, up 61.7% and 61.5% from the year-ago quarter, respectively. Moreover, its free cash flow stood at $592 million, up 42% from the year-ago quarter.
Analysts expect BKR’s revenue and EPS for the fiscal fourth quarter ending December 2023 to increase 17.6% and 26.1% year-over-year to $6.94 billion and $0.48, respectively. The company has exceeded consensus revenue and EPS estimates in three out of the last four quarters, highlighting a commendable performance.
The stock has gained 26.2% over the past nine months to close the last trading session at $34.12. Over the past year, it has gained 20.3%.
BKR’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted optimally.
The stock also has an A grade for Growth and a B for Momentum and Sentiment. Within the 84-stock Energy – Oil & Gas industry, it is ranked #11.
Click here for BKR’s additional Value, Stability, and Quality ratings.
Sasol Limited (SSL)
Based in Johannesburg, South Africa, SSL operates as an integrated chemical and energy company under Advanced Materials; Base Chemicals; Essential Care Chemicals; and Performance Solutions segments.
In October, SSL's business unit, Sasol Chemicals, introduced CARINEX and LIVINEX, two brands designed to broaden its range of sustainable products. This move aligns with Sasol Chemicals' earlier announcement outlining intentions to explore alternatives to conventional surfactants.
Its annualized dividend rate of $0.91 per share translates to a dividend yield of 10.42% on the current share price, higher than its four-year average yield of 2.54%.
During the fiscal year that ended June 30, 2023, SSL’s turnover and operating profit before remeasurement items increased 6.2% and 7.6% year-over-year to ZAR289.70 billion ($15.60 billion) and ZAR55.42 billion ($2.98 billion), respectively. Its earnings for the year and earnings per share stood at ZAR9.33 billion ($502.32 million) and ZAR13.02, respectively.
Street expects SSL’s EPS and revenue to grow 20.4% and 3.9% year-over-year to $3.45 and $16.26 billion in the fiscal year ending June 2024, respectively.
The stock has soared marginally intraday to close the last trading session at $10.07.
SSL’s robust fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
SSL has a B grade for Value and Momentum and a B for Sentiment. Within the B-rated Foreign Oil & Gas industry, it is ranked #15 out of 43 stocks.
Access SSL’s additional POWR Ratings for Growth, Stability, Sentiment, and Quality here.
CrossAmerica Partners LP (CAPL)
CAPL is involved in the wholesale distribution of motor fuels, operation of convenience stores, and ownership and leasing of real estate used in the retail distribution of motor fuels. The company operates through Wholesale and Retail segments.
On November 10, CAPL paid a quarterly dividend of $0.5250 per unit to all unitholders attributable. Its annualized dividend rate of $2.10 per share translates to a dividend yield of 9.33% on the current share price. Its four-year average yield is 11.49%.
In the fiscal third quarter that ended September 30, 2023, CAPL’s operating revenues and gross profit stood at $1.21 billion and $100.44 million, respectively. Moreover, its adjusted EBITDA stood at $44.21 million.
For the same quarter, net income available to limited partners and earnings per common unit stood at $11.66 million and $0.31, respectively. Also, as of September 30, 2023, the company’s total assets stood at $123.26 million, compared to $118.41 million as of December 31, 2022.
CAPL’s revenue and EPS for the fiscal year 2024 are expected to rise 6.2% and 11.8% year-over-year to $4.76 billion and $0.95, respectively. The company surpassed consensus EPS estimates in three of the trailing four quarters.
The stock has gained 14.5% year-to-date and 9.9% over the past three months to close the last trading session at $22.51.
CAPL’s robust prospects are reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
CAPL has an A grade for Growth and Sentiment and a B for Stability. It is ranked #2 out of 26 stocks within the A-rated MLPs – Oil & Gas industry.
Beyond what we’ve stated above, we have also rated the stock for Value, Momentum, and Quality. Get all CAPL ratings here.
What To Do Next?
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BKR shares were trading at $34.68 per share on Tuesday morning, up $0.56 (+1.64%). Year-to-date, BKR has gained 20.31%, versus a 26.12% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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