The OPEC+ group has recently stated that it would reduce its oil production target by two million barrels daily, with actual cuts ranging between 1 to 1.10 million bpd. The group intends to stop oil prices from dropping further with this move.
Oil prices have retreated significantly from their summer highs. However, according to Morgan Stanley (MS) strategist Martijn Rats, in the light of factors such as the OPEC+ production cuts, winding down of the U.S. strategic petroleum reserves, and Russian energy supply disruptions due to the continued war, crude prices could skyrocket once again.
UBS Group AG (UBS) commodities strategist Dominic Schnider believes that oil could reach $125 per barrel as a G7 price cap is expected to tighten an already tight market.
Hence, it could be wise to load up fundamentally strong energy stocks Valero Energy Corporation (VLO), Energy Transfer LP (ET), and APA Corporation (APA) before it’s too late.
Valero Energy Corporation (VLO)
VLO manufactures, markets, and sells petrochemical products and transportation fuels. The company operates through its three broad segments – Refining; Renewable Diesel; and Ethanol.
In September, VLO announced that it had reduced its debt by $1.25 billion through its previously announced tender offers for various series of senior notes. The company also declared a collective debt reduction of approximately $3.60 billion through transactions in the second half of 2021 and the first half of 2022.
In July, VLO declared a quarterly dividend of $0.98 per share on its common stock. This was payable to shareholders on September 1. It reflects upon the company’s ability to pay back its shareholders.
For the fiscal second quarter that ended June 30, adjusted earnings per common share came in at $11.36, up 1,703.2% year-over-year. Adjusted net income attributable to VLO stockholders increased significantly from its year-ago value to $4.61 billion. Revenues increased 86.1% year-over-year to $51.64 billion.
The consensus EPS estimate of $7.05 for the fiscal third quarter ended September 2022 indicates a 478.1% year-over-year improvement. The consensus revenue estimate for the same period of $43.82 billion indicates a 48.4% year-over-year increase.
In addition, VLO has an impressive surprise earnings history, as it has topped consensus EPS estimates in each of the trailing four quarters.
The stock has gained 45.1% over the past year and 51.9% year-to-date to close its last trading session at $114.12.
VLO’s POWR Ratings reflect a promising outlook. The company has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
VLO is also 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 #9 of 94 stocks.
To see additional POWR Ratings for Sentiment and Stability for VLO, click here.
Energy Transfer LP (ET)
ET owns and operates a portfolio of energy assets in the United States. The company sells natural gas to independent power plants, electric utilities, local distribution, and industrial end-users.
On August 24, ET announced that its subsidiary Energy Transfer LNG Export, LLC, had entered into an LNG Sale and Purchase Agreement (SPA) with Shell NA LNG LLC about its Lake Charles LNG Project. This might bolster the company’s top line.
Earlier in August, ET announced that it had completed the sale of its 51% interest in Energy Transfer Canada ULC to a joint venture. The asset sale is expected to enable the company to redeploy capital within its U.S. footprint.
During the fiscal second quarter ended June 30, ET’s revenue increased 71.8% year-over-year to $25.95 billion. The company’s operating income grew 32.3% year-over-year to $2.11 billion.
Net income attributable to partners and net income per common unit for the same period increased 111.8% and 95% from the prior-year period to $1.33 billion and $0.39, respectively.
Analysts expect ET’s EPS and revenue for the fiscal third quarter (ended September 2022) to increase 82.9% and 44.1% year-over-year to $0.37 and $24.02 billion, respectively. ET has topped Street EPS estimates in three out of the trailing four quarters, which is impressive.
ET’s shares have gained 14.8% over the past year and 39.4% year-to-date to close its last trading session at $11.47.
ET’s strong fundamentals are reflected in its POWR Ratings. The company has an overall rating of B, which translates to Buy in our proprietary rating system.
ET has a Momentum grade of A and a Value grade of B. In the Energy – Oil & Gas industry, it is ranked #31.
Beyond what has been discussed above, we have also given ET grades for Sentiment, Growth, Quality, and Stability. Click here to see all of ET’s ratings.
APA Corporation (APA)
APA explores, develops, and produces crude oil and gas properties. The company operates in the United States, Egypt, and the United Kingdom and carries out exploration activities offshore in Suriname.
In September, APA announced an increase in its annual dividend from 50 cents per share to $1.00 per share. The next quarterly dividend of 25 cents per share is payable on November 22. This reflects on the company’s cash generation ability.
In August, APA announced an oil discovery offshore Suriname at Baja-1 in Block 53. John J. Christmann, APA CEO and president, said, “This result confirms our geologic model for the Campanian in the area and helps to de-risk other prospects in the southern portion of both Blocks 53 and 58.”
In the fiscal second quarter that ended June 30, 2022, APA’s revenues increased 71.3% year-over-year to $3.05 billion. Adjusted earnings after tax and adjusted EPS came in at $811 million and $2.37, up 204.9% and 238.6% from their respective year-ago values.
Street EPS and revenue estimates of $2.10 and $2.43 billion for the fiscal third quarter (ended September 2022) reflect 114% and 47.3% year-over-year improvements, respectively.
Over the past year, APA’s stock has gained 51.4%. It has gained 48.5% year-to-date to close its last trading session at $39.93.
It’s no surprise that APA has an overall B rating, which translates to Buy in our POWR Rating system.
APA is rated an A in Momentum and Quality and a B in Value and Growth. Within the same industry, it is ranked #14.
In addition to the POWR Rating grades we’ve stated above, one can see APA ratings for Stability and Sentiment here.
VLO shares were unchanged in after-hours trading Monday. Year-to-date, VLO has gained 58.18%, versus a -21.87% 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.
Take Advantage of These 3 Energy Stocks Before It’s Too Late StockNews.com
