Oil prices had topped the $120 a barrel mark earlier in the year, driven by rebounding demand and supply disruptions due to sanctions on major producer Russia. However, oil prices were under pressure last week as the market assessed the impact of inflation on economic growth and demand.
Although oil prices have retreated from their peaks, there is still a case for buying oil and gas stocks. According to Bill Smead, chief investment officer at Smead Capital Management, energy prices are likely to rise again. He pointed out that demand is likely to flare up when more movement restrictions are eased in China while supply remains tight.
With investment banks and market forecasters expecting the average benchmark Brent crude price to be $112/b this year, we think it might not be wise to exit fundamentally strong energy stocks Valero Energy Corporation (VLO), TotalEnergies SE (TTE), PBF Energy Inc. (PBF), and Whitecap Resources Inc. (SPGYF) just yet.
Valero Energy Corporation (VLO)
VLO manufactures, markets, and sells transportation fuels and petrochemical products globally. The company operates through three segments: Refining; Renewable Diesel; and Ethanol.
In June, VLO declared a regular quarterly cash dividend on the common stock of $0.98 per share. The dividend is payable to shareholders on September 1. This reflects upon the cash generation ability of the company.
VLO’s revenue increased 86.1% year-over-year to $51.64 billion in the second quarter ended June 30. Its operating income grew 1,121.8% from the year-ago value to $6.22 billion, while adjusted net income attributable to VLO stockholders improved 1,672.7% year-over-year to $4.61 billion. The company’s adjusted earnings per common share rose 1,703.2% from its year-ago value to $11.36.
The consensus EPS estimate of $7.58 for the fiscal third quarter ending September 2022 indicates a 521.7% improvement year-over-year. The consensus revenue is expected to increase 44.9% from the same period last year to $42.76 billion. Additionally, VLO has topped consensus EPS estimates in each of the trailing four quarters, which is impressive.
The stock has gained 57.9% over the past year and 39.8% year-to-date to close its last trading session at $104.99.
VLO’s POWR Ratings reflect this promising outlook. The company has an overall rating of A, which translates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
VLO is rated an A in Growth and Momentum and a B in Value and Quality. Within the B–rated Energy - Oil & Gas industry, it is ranked #3 out of 97 stocks. To see additional POWR Ratings for Stability and Sentiment for VLO, click here.
TotalEnergies SE (TTE)
TTE is an integrated oil and gas company operating worldwide. The company operates through the Integrated Gas, Renewables & Power; Exploration & Production; Refining & Chemicals; and Marketing & Services segments. It is headquartered in Courbevoie, France.
TTE recently declared the distribution of its second 2022 interim dividend at €0.69/share, representing an increase of 5% from the interim and the final dividends paid for the financial year 2021. This reflects upon the cash generation ability of the company.
TTE and its partner Nigerian National Petroleum Corporation (NNPC), recently announced the start of production from the Ikike field in Nigeria. The Ikike project’s peak production is expected to be 50,000 barrels of oil equivalent per day by the end of 2022.
TTE’s adjusted revenues from sales came in at $70.46 billion for the second quarter of 2022, ended June 30, representing a 69.2% year-over-year growth. Its adjusted consolidated net income grew 178.4% from the prior-year quarter to $9.89 billion, while its cash flow from operations rose 115.7% from the same period last year to $16.28 billion. The EPS of the company increased 170% from the prior-year period to $2.16.
Analysts expect TTE’s revenue for the third quarter ending September 2022 to be $69.24 billion, indicating a 41.1% year-over-year growth. The company’s EPS for the same quarter is expected to increase 102.7% from the prior-year quarter to $3.57. Additionally, TTE has topped consensus EPS estimates in each of the trailing four quarters, which is impressive.
TTE has gained 11.4% over the past year and 0.5% intraday to close its last trading session at $49.68.
The company has an overall rating of B, which translates to Buy in our proprietary rating system. TTE has an A grade for Momentum and a B for Sentiment. It is ranked #13 in the same industry.
Beyond what we’ve stated above, we have also given TTE grades for Growth, Value, Stability, and Quality. Get all the TTE ratings here.
PBF Energy Inc. (PBF)
PBF refines and supplies petroleum products. The company operates in two segments, Refining and Logistics, producing gasoline, ultra-low-sulfur diesel, heating oil, diesel fuel, jet fuel, lubricants, petrochemicals, and asphalt, as well as unbranded transportation fuels, and other petroleum products.
On July 28, PBF and PBF Logistics LP (PBFX) announced a definitive agreement and plan of merger to acquire all of the outstanding common units representing limited partner interests of PBFX. This transaction is expected to simplify the company’s corporate structure and eliminate the costs of running a separate public company.
On May 25, PBF announced that its subsidiary PBF Holding Company LLC had completed a multi-year extension of its asset-based revolving credit facility with an aggregate commitment of $4.30 billion. This is expected to provide near-term liquidity and financial flexibility.
PBF’s revenues came in at $14.08 billion for the second quarter of 2022, ended June 30, representing a 104.1% year-over-year growth. Its adjusted EBITDA grew 28,537.3% from the prior-year quarter to $1.92 billion, while its net income rose 1,668% from the same period last year to $1.24 billion. The EPS increased by 2,374.4% from the prior-year period to $9.65.
Analysts expect PBF’s revenue for the third quarter ending September 2022 to be $10.36 billion, indicating a 44.1% year-over-year growth. The company’s EPS for the same quarter is expected to increase 4,772.4% from the prior-year quarter to $5.85.
PBF has gained 222.2% over the past year and 2.7% intraday to close its last trading session at $30.06. The stock has gained 131.8% year-to-date.
It is no surprise that PBF has an overall A rating, which translates to Strong Buy in our POWR Rating system. The stock also has an A grade for Growth, Value, and Momentum and a B for Quality. It is ranked #4 in the Energy – Oil & Gas industry.
Beyond what we’ve stated above, we have also given PBF grades for Stability and Sentiment. Get all the PBF ratings here.
Whitecap Resources Inc. (SPGYF)
SPGYF is an oil and gas company that acquires and develops petroleum and natural gas properties in Canada. The company, headquartered in Calgary, Canada, has its principal properties in West Central Alberta, British Columbia, and parts of the Saskatchewan area.
In July, SPGYF confirmed a dividend of CAD0.0367 per common share, payable on August 15. This reflects upon the cash position and shareholder return ability of the company.
On June 28, SPGYF announced that it had entered into a purchase and sale agreement to acquire XTO Energy Canada for cash consideration. The acquisition is expected to significantly improve the company’s free funds flow profile and add to the Montney inventory by expanding and consolidating certain working interests in SPGYF’s assets.
For the second quarter of 2022, SPGYF’s petroleum and natural gas revenues increased 105.7% year-over-year to CAD 1.26 billion ($973.69 million). Its operating netbacks increased 106.3% to CAD 57.59 ($44.50) per boe. Net income and net income per share came in at CAD380.66 million ($294.16 million) and CAD 0.61, up 1951.2% and 1933.3% from the prior-year period.
The consensus revenue estimate of $3.72 billion for the fiscal year ending December 2022 indicates an 88.6% improvement year-over-year.
Over the past year, SPGYF’s stock has gained 55.8% to close its last trading session at $6.70. It has gained 12.8% year-to-date.
This promising prospect is reflected in SPGYF’s POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
SPGYF has an A grade for Momentum and a B grade for Growth, Value, and Quality. It is ranked #1 in the same industry. Click here to see the additional POWR Ratings for SPGYF (Stability and Sentiment).
VLO shares were trading at $106.74 per share on Monday afternoon, up $1.75 (+1.67%). Year-to-date, VLO has gained 46.18%, versus a -12.38% 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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