Russian President Vladimir Putin said that he would recognize the independence of Donetsk and Luhansk in eastern Ukraine yesterday. On the backs of rising tensions jittering the market, oil prices in Asia Morning trade on Tuesday surged. United States crude rose 3.22% to $94 per barrel, while Brent crude gained 1.5% to $96.82 per barrel.
On top of that, if Russia invades Ukraine, it may pose an unwilling help for the American oil industry. Moreover, analysts have predicted oil prices to go as high as $100 per barrel, some even predicting them to go up to $150 per barrel.
Given this backdrop, the oil and gas stocks Ovintiv Inc. (OVV), Chesapeake Energy Corporation (CHK), Plains All American Pipeline, L.P. (PAA), and Sunoco LP (SUN) seems to be attractive at current valuations. Hence, these may be solid bets in this scenario.
Ovintiv Inc. (OVV)
OVV operates as an oil, natural gas, and natural gas liquids exploration company focused on developing its multi-basin portfolio. The company owns principal assets in Permian in West Texas and Anadarko in west-central Oklahoma.
In terms of its forward non-GAAP P/E ratio, OVV is currently trading at 7.69x, 32.2% lower than the industry average of 11.34x. Its forward non-GAAP PEG multiple of 0.07 is currently trading 92.4% lower than the industry average of 0.95.
For the third fiscal quarter ended September 30, OVV’s total revenues went up 50.3% year-over-year to $1.79 billion. Non-GAAP free cash flow rose 921.3% from the prior-year quarter to $480 million, while non-GAAP operating earnings stood at $391 million, up substantially from its negative year-ago value.
Street EPS estimate for the quarter ending March 2022 of $2.15 reflects a 95.5% year-over-year rise, while Street revenue estimate of $2.09 billion for the same quarter indicates an improvement of 28.7% from the prior-year quarter.
The stock has gained 89.6% over the past year and 20.2% year-to-date to close Friday’s trading session at $40.50.
OVV’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
OVV has a Momentum grade of A and a Growth and Value grade of B. It is ranked #19 out of the 46 stocks in the Foreign Oil & Gas industry. This industry is rated A.
In addition to the POWR Rating grades we’ve stated above, one can see OVV ratings for Stability, Sentiment, and Quality here.
Chesapeake Energy Corporation (CHK)
CHK acquires, explores, and develops properties for the production of oil, natural gas, and natural gas liquids (NGLs) from underground reservoirs in the United States. The company holds interests in natural gas resource plays.
On January 25, CHK announced that it had signed definitive agreements to acquire Chief E&D Holdings, LP, and associated non-operated interests held by affiliates of Tug Hill, Inc. The acquisitions are expected to strengthen its asset portfolio, provide operational efficiencies, and grow its base dividend.
On December 2, CHK announced the repurchase of $1 billion in an aggregate value of its common stock and warrants. This should improve shareholder returns.
On November 1, the company announced that it had completed the acquisition of Vine Energy Inc. (VEI). About this acquisition, Nick Dell’Osso, CHK’s President and Chief Executive Officer, said, “We are pleased to integrate the outstanding Vine operations and assets into our portfolio, strengthening our position in the Haynesville Shale with over 900 additional drilling locations, immediately improving our free cash flow profile and accelerating a significant return of capital to our shareholders at a time of favorable natural gas prices.”
CHK’s forward non-GAAP P/E multiple of 7.01 is currently trading 38.2% lower than the industry average of 11.34. In terms of its non-GAAP forward PEG, it is trading at 0.04x, 95.5% lower than the industry average of 0.95x.
For the fiscal third quarter ended September 30, CHK’s adjusted net income attributable to common stockholders increased 427.5% year-over-year to $269 million. Net cash provided by operating activities improved 16% from the prior-year quarter to $443 million. The company’s cash, cash equivalent, and restricted cash balance rose 180.4% from the same period the prior year to $858 million.
The consensus EPS estimate of $9.70 for fiscal 2022 indicates a 3.1% year-over-year increase. Likewise, the consensus revenue estimate for the same year of $6.52 billion reflects a rise of 34.2% from the prior year. Moreover, CHK has an impressive surprise earnings history, as it has topped consensus EPS estimates in three out of the trailing four-quarter.
Over the past year, the stock has gained 49.5% and 24.9% over the past six months to close Friday’s trading session at $65.78.
This promising outlook is reflected in CHK’s POWR Ratings. The stock has an overall B rating, which translates to Buy in our proprietary rating system.
CHK has a Momentum grade of A and a Value and Quality grade of B. In the 52-stock Energy – Oil & Gas industry, it is ranked #15. The industry is rated B. Click here to see the additional POWR Ratings for CHK (Growth, Stability, and Sentiment).
Plains All American Pipeline, L.P. (PAA)
PAA operates in the pipeline transportation, terminalling, storage, and gathering of crude oil and NGL in the United States and Canada. The company operates through Transportation; Facilities; Supply, and Logistics segments.
On January 10, PAA declared a quarterly distribution of $0.18 per common unit, cumulating to $0.72 per common unit. With respect to its Series A Preferred Units, the company announced a quarterly distribution of $0.525 per Series A Preferred Unit, which cumulates to $2.10 on an annualized basis. Both the distributions were payable on February 14. This reflects upon the company’s ability to pay back its unitholders.
On October 5, PAA and Oryx Midstream Holdings LLC, a portfolio company of Stonepeak Infrastructure Partners, announced the successful completion of the formation of their Permian Basin strategic joint venture. About this formation, Willie Chiang, Chairman and CEO of PAA, said, “The Plains and Oryx teams have developed a robust integration strategy that prioritizes a seamless transition for customers and positions the JV to capture opportunities as the Permian continues to grow.”
In terms of its forward EV/Sales, PAA is currently trading at 0.41x, 84.1% lower than the industry average of 2.57x. Its forward Price/Sales multiple of 0.15 is trading 90.1% lower than the industry average of 1.56.
PAA’s revenues increased 117.2% year-over-year to $12.95 billion in the fiscal fourth quarter ended December 31. Net income attributable to PAA came in at $450 million, while net income per common unit stood at $0.56, both registering a substantial increase over their negative year-ago values.
Analysts expect PAA’s EPS to increase 12% year-over-year to $0.28 for the fiscal quarter ending March 2022, while Street expects revenue to improve 53.7% from the prior-year period to $10.69 billion.
PAA’s shares have gained 21.2% over the past year and 8.5% year-to-date to close Friday’s trading session at $10.13.
It’s no surprise that PAA has an overall B rating, which equates to Buy in our POWR Rating system. PAA has an A grade for Momentum and a B grade for Growth and Value. It is ranked #8 out of 34 in the MLPs – Oil & Gas industry. The industry is rated A. To see the additional POWR Ratings for Stability, Sentiment, and Quality for PAA, click here.
Sunoco LP (SUN)
SUN is a distributor and retailer of motor fuels in the United States. The company operates through the two broad segments of Fuel Distribution and Marketing, purchasing motor fuels from independent refiners and oil companies and supplying to independent dealer stations; and All Other, for offering motor fuel, merchandise, and food services.
On January 26, SUN declared a quarterly distribution for the fourth quarter of 2021 of $0.8255 per common unit or $3.3020 per common unit on an annualized basis, which was payable to shareholders on February 18. This indicates the company’s ability in sustainable cash generation.
SUN’s forward EV/Sales multiple of 0.38 is currently trading 85.1% lower than the industry average of 2.57. In terms of its forward Price/Sales, it is trading at 0.19x, 88.2% lower than the industry average of 1.56x.
For the fiscal fourth quarter ended December 31, SUN’s total revenues increased 94% year-over-year to $4.95 billion. Operating income improved 22.2% from the prior-year period to $176 million. Net income and comprehensive income rose 20.5% from the prior-year quarter to $100 million, while net income per common unit came in at $0.95, up 23.4% year-over-year.
The consensus revenue estimate of $4.43 billion for the quarter ending March 2022 reflects a rise of 26.7% from the prior-year quarter.
Over the past year, SUN’s stock has gained 36.3% to close Friday’s trading session at $42.26. It has gained 15.9% over the past six months.
SUN has an overall B rating, equating to Buy in our proprietary rating system. The stock has a Value and Stability grade of A. It is ranked #12 in the MLPs – Oil & Gas industry.
In addition to the POWR Rating grades we’ve stated above, one can see SUN’s ratings for Growth, Momentum, Sentiment, and Quality here.
OVV shares were trading at $40.58 per share on Wednesday morning, up $1.41 (+3.60%). Year-to-date, OVV has gained 20.42%, versus a -9.82% 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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