The oil and gas industry is set for significant growth, driven by persistent tensions in the Middle East, particularly the Hezbollah-Israel conflict, which raises the risk of oil supply disruptions and could lead to soaring prices. Additionally, the recent drop in U.S. crude inventories to their lowest levels in a year further supports the potential for higher prices in the near term, enhancing market optimism.
Amid this backdrop, it could be wise to consider buying top-rated oil and gas stocks, such as Enterprise Products Partners L.P. (EPD), Energy Transfer LP (ET), and Plains All American Pipeline, L.P. (PAA), which trading at a discount.
Although peak summer demand is tapering off as seasonal consumption declines, the Fed’s interest rate cut has the potential to stimulate economic activity and increase energy demand, positively influencing oil prices over the long term. Plus, advancements in exploration, production, and energy-related services further enhance market prospects, creating a more optimistic outlook for the industry.
According to Statista, primary energy consumption is projected to reach around 359 million barrels of oil equivalent per day by 2045. Oil and gas are expected to remain at the forefront, contributing 100 and 85 million barrels of oil equivalent per day, respectively. Notably, global demand for natural gas surged in early 2024, driven primarily by double-digit growth in Asia, particularly in China and India.
Considering these favorable trends, strong demand, and the industry's solid financial position, let’s discuss the fundamentals of the three featured oil and gas stocks.
Enterprise Products Partners L.P. (EPD)
EPD provides midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, petrochemicals, and refined products. It operates in four segments: NGL Pipelines & Services; Crude Oil Pipelines & Services; Natural Gas Pipelines & Services; and Petrochemical & Refined Products Services.
On August 21, 2024, EPD announced an agreement to acquire Piñon Midstream for $950 million in cash. The acquisition enhances EPD’s natural gas treating capabilities in the Delaware Basin, with the deal expected to close in Q4 2024.
In terms of forward non-GAAP P/E, EPD’s 10.85x is 6.5% lower than the 11.60x industry average. Its 1.69x forward EV/Sales is 11.1% lower than the 1.90x industry average. Similarly, its 1.13x forward Price/Sales is 20.3% lower than the 1.41x industry average.
In the second quarter, which ended on June 30, EPD’s total revenues increased 26.6% year-over-year to $13.48 billion. The company’s operating income stood at $1.77 billion, up 11.8% year-over-year. Its net income attributable to common unitholders and earnings per common unit amounted to $1.41 billion and $0.64, representing an increase of 12.1% and 12.3% year-over-year, respectively.
The consensus revenue estimate of $14.32 billion for the fiscal third quarter (ending September 2024) represents a 19.3% improvement year-over-year. The consensus EPS estimate of $0.68 for the ongoing quarter represents a 12.8% increase from the same period last year. The company has an impressive surprise history, as it surpassed the consensus revenue estimates in three of the trailing four quarters.
EPD’s stock has gained 12.6% over the past nine months to close the last trading session at $29.49.
EPD’s POWR Ratings reflect this positive outlook. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the A-rated MLPs - Oil & Gas industry, it is ranked #10 out of 23 stocks. It has a B grade for Value, Momentum, and Stability. To see the other EPD ratings for Growth, Sentiment, and Quality, click here.
Energy Transfer LP (ET)
ET provides energy-related services. It owns and operates approximately 11,600 miles of natural gas transportation pipeline, three natural gas storage facilities, and two natural gas storage facilities in Texas and Oklahoma. Additionally, it manages 19,945 miles of interstate natural gas pipeline.
On July 16, 2024, ET and Sunoco LP (SUN) announced a joint venture to combine their crude oil and water-gathering assets in the Permian Basin. ET will own 67.5% of the venture and oversee over 5,000 miles of pipelines and 11 million barrels of storage capacity.
On July 15, 2024, ET completed its $2.28 billion acquisition of WTG Midstream, adding 6,000 miles of gas-gathering pipelines and eight processing plants to its Permian Basin network. The deal is expected to increase distributable cash flow per unit starting in 2025.
In terms of forward Price/Sales, ET’s 0.62x is 56.2% lower than the 1.41x industry average. Likewise, its 0.82x forward non-GAAP PEG is 45.9% lower than the 1.51x industry average. Also, its 1.44x forward EV/Sales is 24% lower than the 1.90x industry average.
ET’s revenues for the second quarter that ended June 30, 2024, rose 13.2% year-over-year to $20.73 billion. Its operating income grew 25% from the year-ago value to $2.30 billion. ET’s net income for the same quarter came in at $1.99 billion, up 61.8% from the prior year’s quarter. In addition, the company’s net income per common unit increased 40% year-over-year to $0.35.
Street expects ET’s EPS for the quarter ending September 30, 2024, to increase 120.3% year-over-year to $0.33, and its revenue for the same quarter is expected to increase 13.1% year-over-year to $23.46 billion.
Over the past year, the stock has gained 17% to close the last trading session at $16.11.
ET’s solid fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It is ranked #2 out of 80 stocks in the Energy - Oil & Gas industry. ET has an A grade for Growth and a B for Value, Momentum, and Stability. Click here to see the other ET ratings for Sentiment and Quality.
Plains All American Pipeline, L.P. (PAA)
PAA and its subsidiaries engage in the pipeline transportation, terminalling, storage, and gathering of crude oil and natural gas liquids (NGL) in the United States and Canada. The company operates in two segments: Crude Oil and Natural Gas Liquids (NGL).
In terms of forward EV/Sales, PAA’s 0.50x is 73.8% lower than the 1.90x industry average. Similarly, its 0.24x forward Price/Sales is 83% below the industry average of 1.41x. In addition, its 1.53x forward Price/Book is 4.4% lower than the 1.60x industry average.
PAA’s revenue for the second quarter that ended June 30, 2024, increased 11.5% year-over-year to $12.93 billion. Its adjusted EBITDA rose 15.3% from the year-ago value to $807 million.
Moreover, the company’s adjusted net income attributable to PAA grew 18.5% over the prior year quarter to $288 million. Also, its non-GAAP net income per common unit stood at $0.31, up 24% year-over-year.
Analysts expect PAA’s revenue for the current year ending December 31, 2024, to increase 6.2% year-over-year to $13.06 billion, while its EPS is expected to be $1.33. For fiscal 2025, its revenue and EPS are forecasted to register a 4.7% and 2.3% year-over-year growth, reaching $54.14 billion and $1.36, respectively.
Over the past nine months, the stock has gained 18% to close the last trading session at $17.69.
PAA’s POWR Ratings reflect its bright prospects. It has an overall rating of B, translating to a Buy in our proprietary rating system.
It has an A grade for Growth and a B for Value, Momentum, and Stability. Within the MLPs - Oil & Gas industry, it is ranked #9. To access PAA’s additional grades for Sentiment and Quality, click here.
What To Do Next?
Get your hands on this special report with 3 low priced companies with tremendous upside potential even in today’s volatile markets:
3 Stocks to DOUBLE This Year >
EPD shares were trading at $29.54 per share on Thursday afternoon, up $0.05 (+0.17%). Year-to-date, EPD has gained 18.41%, versus a 21.05% 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.
3 Top-Rated Oil & Gas Stocks Still Trading at a Discount StockNews.com
