Crude oil prices are trading above $90 a barrel, hovering near their seven-year highs, supported by a strong United States nonfarm payrolls report, which indicates a resilient underlying economy that might be strong enough to withstand the surge in Omicron cases. The oil cartel, OPEC+, is committed to raising output by an additional 400 thousand bpd in March. However, that does not seem to be enough to erase concerns about supply shortages.
As petroleum production seems to be slow with respect to its demand, the U.S. Energy Information Administration (EIA) increased its Brent Crude oil forecast for 2022 by nearly 11% in its February outlook. On top of it, the EIA raised its natural gas prices forecast to $4.70/MMBtu on average in February, attributing it to uncertain weather conditions.
Moreover, the Energy Select Sector SPDR Fund (XLE) gains of 37.9% over the past six months have majorly outpaced the broader SPDR S&P 500 ETF Trust (SPY) gains of 1.9% over the same period. Therefore, we believe the energy sector stocks Suncor Energy Inc. (SU), Continental Resources, Inc. (CLR), Chesapeake Energy Corporation (CHK), and PDC Energy, Inc. (PDCE) to be ideal investments to ride on the energy sector’s momentum.
Suncor Energy Inc. (SU)
SU, headquartered in Calgary, Canada, is an integrated energy company primarily focused on developing petroleum resource basins in Canada’s Athabasca oil sands. The company engages in the exploration, acquisition, production, and transport of crude oil in Canadian and international markets.
On October 27, SU approved accelerating increased returns to shareholders by reinstating its 2019 dividend levels of CAD0.42 per common share, which indicates a 100% increase in its quarterly dividend. This reflects upon the company’s confidence in the execution of strategic plans. On February 2, 2022, SU declared the reinstated dividend of CAD0.42 per share, payable to shareholders on March 25, 2022.
Earlier in October, SU confirmed that it had assumed operatorship in the Syncrude Joint Venture. The venture is expected to drive greater efficiencies in the SU assets located in the Regional Municipality of Wood Buffalo.
For the fourth fiscal quarter ended December 31, SU’s revenues, net of royalties, and other income increased 69.2% year-over-year to CAD11.16 billion ($8.79 billion). Adjusted funds from operations rose 157.5% from the prior-year quarter to CAD3.14 billion ($2.48 billion). Net earnings and net earnings per common share stood at CAD1.55 billion ($1.22 billion) and CAD1.07, registering a substantial increase over their negative year-ago values.
Street EPS estimate of $0.88 for the quarter ending June 2022 indicates a 131.6% year-over-year increase. Likewise, Street revenue estimate for the same quarter of $9.43 billion reflects an improvement of 31.2% from the prior-year period.
The stock has gained 61.2% over the past year to close yesterday’s trading session at $28.47. It has gained 44.7% over the past six months. SU is currently trading higher than its 50-day Moving Average of $26.15 and 200-day Moving Average of $23.27.
SU’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.
SU has an A grade for Momentum and Quality. In the 81-stock Energy – Oil & Gas industry, it is ranked #14. The industry is rated B.
In addition to the POWR Rating grades we’ve stated above, one can see SU ratings for Growth, Value, Stability, and Sentiment here.
Continental Resources, Inc. (CLR)
CLR operates as an explorer, developer, and producer of crude oil natural gas, primarily in the northern, southern, and eastern regions of the United States. The company sells its offerings to energy marketing companies, crude oil refining companies, and natural gas gathering and processing companies.
On January 25, CHK announced that it would sell Powder River Basin assets in Wyoming to CLR for approximately $450 million in cash. The transaction is expected to close in the first quarter of this year and might increase CLR’s operative capacity.
On November 9, CLR announced the pricing of its private placement of $800 million of 2.268% senior notes due 2026 and $800 million of 2.875% senior notes due 2032. The net proceeds from the offerings were intended to be used by the company to fund a portion of the purchase price for its acquisition from Pioneer Natural Resources Company, for fee and expense payments of the offering, and general corporate purposes.
CLR’s total revenues increased 93.7% year-over-year to $1.34 billion in the fiscal third quarter ended September 30. Adjusted net income and adjusted net income per share stood at $437.24 million and $1.20, registering a substantial increase from their negative year-ago values. Non-GAAP EBITDAX improved 136.9% year-over-year to $1.12 billion.
Analysts expect CLR’s EPS to increase 834.8% year-over-year to $1.69 for the fiscal fourth quarter ended December 2021. Likewise, Street expects revenue for the same period to improve 103.6% from the prior-year quarter to $1.71 billion.
The stock has gained 137.5% over the past year and 55.7% over the past six months to close yesterday’s trading session at $54.79. It is currently trading higher than its 50-day and 200-day Moving Averages of $48.31 and $41.60, respectively.
It’s no surprise that CLR has an overall B rating, which translates to Buy in our POWR Rating system.
CLR has a Momentum and Quality grade of A and a Growth grade of B. It is ranked #19 in the Energy – Oil & Gas industry. To see the additional POWR Ratings for Value, Stability, and Sentiment for CLR, click 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.”
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 $9.66 for fiscal 2022 indicates a 2.7% year-over-year increase. Likewise, the consensus revenue estimate for the same year of $6.76 billion reflects a rise of 42.4% 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 six months, the stock has gained 19.4% to close yesterday’s trading session at $65.72. It has gained 46.1% over the past year. It is currently trading higher than its 50-day Moving Average of $65.17 and its 200-day Moving Average of $58.91.
This promising outlook is reflected in CHK’s POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
CHK has a Momentum grade of A and a Value and Quality grade of B. It is ranked #13 in the same industry. Click here to see the additional POWR Ratings for CHK (Growth, Stability, and Sentiment).
PDC Energy, Inc. (PDCE)
PDCE operates as an independent exploration and production company, developing unconventional oil and natural gas resources, focusing mainly on the Wattenberg Field in Colorado and the Delaware Basin in West Texas.
On December 7, PDCE declared a special dividend of $0.50 per share in addition to a quarterly cash dividend of $0.12 per share on its outstanding common stock. The dividends were payable on December 29, 2021. This reflects upon the company’s ability of significant shareholder returns.
On October 6, PDCE announced that the Colorado Oil and Gas Conservation Commission (COGCC) approved its Spinney Oil & Gas Development Plan (OGDP) permit application. The Spinney is an eight-well pad in rural Weld County, Colorado. About the approval, President and CEO Bart Brookman commented, “Thanks to our partnerships and collaboration with local communities, Weld County, and the COGCC, we are confident the Spinney is merely the first step in further securing permits for our future undeveloped Wattenberg drilling inventory.”
PDCE’s total revenues increased 95.2% year-over-year to $486.36 million in the fiscal third quarter ended September 30. Adjusted net income and adjusted EPS came in at $233.40 million and $2.33, both up 124% from the prior-year period. Adjusted EBITDAX improved 54.9% from the same period the prior year to $432 million.
The consensus EPS estimate of $2.60 for the quarter ended December 2021 indicates a 136.4% year-over-year increase. Likewise, the consensus revenue estimate of $673.32 million for the same quarter reflects a rise of 141.7% from the prior-year quarter. PDCE has topped consensus EPS estimates in each of the trailing four quarters, which is impressive.
Over the past year, the stock has gained 111.7% to close yesterday’s trading session at $57.04. PDCE has also gained 47.9% over the past six months. The stock is currently trading higher than its 50-day and 200-day Moving Averages of $53.20 and $47.02, respectively.
PDCE has an overall rating of B, which translates to Buy in our POWR Rating system. The stock has a Momentum and Quality grade of A and a Growth grade of B. It is ranked #6 in the Energy – Oil & Gas industry. Click here to see the additional POWR Ratings for Value, Stability, and Sentiment for PDCE.
SU shares were unchanged in after-hours trading Wednesday. Year-to-date, SU has gained 15.42%, versus a -3.67% 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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