Fundamentally sound energy stocks Marathon Petroleum Corporation (MPC), Berry Corporation (BRY), Unit Corporation (UNTC), and Epsilon Energy Ltd. (EPSN) could be ideal investments to capitalize on their potential upsides driven by steadily increasing demand from Asian economies amid constrained supplies due to turbulent geopolitics.
To gain a better understanding of each of these stocks, let's take a look at what's happening in the energy sector.
Energy prices climbed significantly in the first quarter of 2022, driven by solid demand and supply-side imbalances exacerbated by Russia’s invasion of Ukraine. However, the redrawing of the global energy map since the conflict began has been nothing short of a windfall for U.S. energy producers. The United States has “gone from (being) a very domestically focused market into an international powerhouse.”
Despite oil and gas prices retreating from their peaks due to macroeconomic uncertainties caused by inflation and high-interest rates, global energy demand is still expected to increase by 1.3% in 2023 amid Europe’s increasing reliance on American shipments feeding the Texas export boom, Russia announcing a voluntary production cut of 500,000 barrels a day in response to Western sanctions, and growing Asian economies absorbing the bulk of the remaining available supplies.
Besides, energy demand is expected to grow in the long run due to increased economic activity and the effects of climate change. The global energy as a service market is projected to grow at a 10.3% CAGR to reach $144 billion by 2028.
Let’s take a closer look at the recommended stocks.
Marathon Petroleum Corporation (MPC)
MPC is involved in midstream and downstream businesses, such as petroleum product refining, marketing, and retail in the United States. The company operates through two segments: Refining & Marketing and Midstream transport.
On January 27, MPC declared its quarterly dividend of $0.75 per share of common stock, payable on March 10, 2023. The company pays $3.00 annually as dividends, which translates to a forward yield of 2.37% at the current price. Dividend payouts have grown at a 10.4% CAGR over the past five years.
In addition to paying out $1.3 billion as dividends, MPC returned another $11.9 billion of capital to shareholders in 2022 through share repurchases. This brought the total repurchases to almost $17 billion since May 2021. In addition, the company also announced an incremental share repurchase authorization of $5 billion. As a result, the company has $7.6 billion in remaining repurchase authorization.
For the fiscal year, which ended December 31, 2022, MPC’s total revenues and other income increased 48.8% year-over-year to $179.95 billion, while its adjusted EBITDA from continuing operations increased 171.7% year-over-year to $24.34 billion due to improving operational and commercial execution as the refining system operated at 96% utilization to meet demand.
As a result, adjusted net income attributable to MPC came in at $13.50 billion or $26.16 per share, compared to $1.56 billion or $2.45 per share during the previous fiscal.
MPC’s trailing 12-month ROCE, ROTC, and ROTA of 53.55%, 19.99%, and 16.15% surpass the respective industry averages of 21.44%, 8.85%, and 7.40%.
Analysts expect MPC’s EPS for the first quarter of the fiscal year 2023 to come in at $5.18, compared to $1.45 during the previous-year period. Moreover, the company has surpassed its consensus EPS estimates in each of the trailing four quarters.
MPC’s stock has gained 20.6% over the past six months and 62.6% over the past year to close the last trading session at $126.58. Despite the recent uptrend in its price, in terms of forward P/E, MPC is trading at 6.91x, 18.2% lower than the industry average of 8.45x.
MPC’s fundamental strength is reflected in its overall A rating, which translates to a Strong Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
MPC also has an A grade for Quality and Momentum and a B for Growth. It is ranked #4 of 91 stocks in the B-rated Energy - Oil & Gas industry.
Click here for additional POWR Ratings for MPC’s Value, Sentiment, and Stability.
Berry Corporation (BRY)
As an independent upstream energy company, BRY operates onshore conventional oil reserves in California and Utah. Its segments include Development and Production (D&P); and Well Servicing and Abandonment.
In February, BRY announced dividends totaling $0.50 per share on the company’s outstanding common stock, comprising a fixed dividend of $0.06 per share and a variable dividend of $0.44 per share. The dividends are payable on March 23, 2023, to shareholders of record at the close of business on March 15, 2023.
BRY currently pays $0.24 per share annually as fixed dividends, translating to a yield of 2.56% at the current price. Moreover, the company intends to double its fixed dividend to $0.12 per share quarterly and $0.48 per share annually, with variable dividends to continue in accordance with its shareholder return model.
On January 1, BRY’s evolved executive team took charge of operations in accordance with the company’s announcement on November 29, 2022. Fernando Araujo, BRY’s erstwhile COO, has stepped up to become the new CEO, with Trem Smith vacating the position to become Executive Chairman. Mike Helm has become the new CFO in place of Cary Baetz, who will be helping with the transition as a special advisor until March 2023.
BRY’s board expressed confidence in the rejigged executive team to lead the company’s future success by continuing to strengthen operations while reducing overall expenses to deliver top-tier capital returns to shareholders.
On November 2, 2022, the company’s board of directors declared a dividend totaling $0.47 per share on its outstanding common stock, paid to shareholders on November 28, 2022. This reflects on BRY’s cash generation ability.
During the fiscal year that ended December 31, 2022, BRY’s total revenues increased 68.5% year-over-year to $918.34 million, while its adjusted EBITDA increased 79.1% to $379.95 million. As a result, the company’s adjusted net income came in at $226.46 million or $2.74 per share, compared to $10.72 million or $0.13 per share during the previous fiscal.
BRY’s trailing 12-month ROCE, ROTC, and ROTA of 34.23%, 13.40%, and 16.1% surpass the respective industry averages of 21.44%, 8.85%, and 7.40%. Moreover, BRY has impressed by surpassing its consensus EPS estimates in three of the trailing four quarters.
BRY’s stock has gained 5.5% over the past year to close the last trading session at $9.37. In terms of forward P/E, BRY is trading at 5.18x, 38.8% lower than the industry average of 8.45x.
BRY’s solid prospects are reflected in its overall rating of B, which equates to Buy in our POWR Ratings system. It has an A grade for Value and a B for Momentum and Sentiment.
BRY is ranked #14 of 91 stocks in the B-rated Energy - Oil & Gas industry.
Click here for additional POWR Ratings for Stability, Quality, and Growth for BRY.
Unit Corporation (UNTC)
UNTC explores, acquires, develops, and operates oil and natural gas properties in the United States. The company operates through its three broad segments: Oil and Natural Gas; Contract Drilling; and Mid-Stream.
On January 31, UNTC paid its shareholders a special cash dividend of $10 per share. In addition, the company also announced a quarterly cash dividend policy, beginning in the second quarter of the fiscal year, with an initial payout of $2.50 per share.
For the third quarter of the fiscal year 2022, which ended September 30, UNTC’s total revenues came in at $120.28 million, while its income from operations increased 39% year-over-year to $66.26 million. During the same period, the net income attributable to UNTC came in at $55.82 million or $5.60 per share, compared to $6.30 million and $0.55 per share during the previous-year quarter.
UNTC’s trailing 12-month ROCE, ROTC, and ROTA of 69.92%, 34.04%, and 36.09% compare favorably with the respective industry averages of 21.44%, 8.85%, and 7.40%.
The stock has gained 3.9% over the past year to close the last trading session at $48.30. This is 2.93 times its trailing 12-month earnings, which is 62.7% lower than the industry average of 7.86x. This indicates more headroom for potential upside in the stock.
UNTC’s promising outlook is reflected in its overall POWR Rating of A, translating to Strong Buy in our proprietary rating system. It also has an A grade for Momentum, Value, and Quality.
UNTC is ranked #5 Energy - Oil & Gas industry. Click here for additional ratings on Growth, Stability, and Sentiment for UNTC.
Epsilon Energy Ltd. (EPSN)
EPSN is involved in onshore production and midstream operations, focusing on the Marcellus Shale of Pennsylvania. The company is engaged in acquiring, developing, gathering, and producing natural gas and oil reserves and operates through three segments: Upstream, Gathering System, and Corporate.
On December 30, 2022, EPSN paid its quarterly dividend of $0.06 per common share. The company pays $0.25 annually as dividends which translates to a yield of 4.30% at the current price, better than its four-year average dividend yield of 0.57%
During the third quarter of the fiscal, which ended September 30, 2022, EPSN’s total revenues increased 62.2% year-over-year to $21.24 million, driven by a strong market for natural gas coupled with the higher-than-forecasted Koromlan 107HC well results. During the same period, the company’s adjusted EBITDA increased 143.7% year-over-year to $16.54 million.
As a result, EPSN’s net comprehensive income came in at $9.57 million or $0.42 per share, compared to $1.40 million or $0.06 per share during the previous-year quarter.
EPSN’s trailing 12-month ROCE, ROTC, and ROTA of 40.65%, 34.56%, and 28.36% compare favorably with the respective industry averages of 21.44%, 8.85%, and 7.40%.
EPSN’s stock has dipped 1.4% over the past month to close the last trading session at $5.82. It is currently trading at 4.02x its trailing-12-month earnings, 48.9% lower than the industry average of 7.86x. This indicates further upside potential for the stock.
EPSN’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It has an A grade for Quality and a B for Value, Sentiment, and Momentum.
Consequently, EPSN has earned the top spot in the same industry. Click here to see the additional POWR Ratings for EPSN’s Growth and Stability.
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MPC shares were trading at $126.56 per share on Tuesday morning, down $0.02 (-0.02%). Year-to-date, MPC has gained 9.38%, versus a 3.84% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
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