While the stock market endured incredulous turmoil this year, the energy sector remained an outperformer. The S&P 500 Energy ETF (XLE) soared 56.9% year-to-date versus the S&P 500’s 19.3% year-to-date decline. According to FactSet data, energy stocks have the highest ‘buy’ ratings from analysts.
Although oil prices have been on a downtrend recently, that isn’t swaying the energy bulls. Some analysts see it finding a floor with the war dragging on, a rebound in demand from China, and potential OPEC production cuts. Ben Cook, a portfolio manager at Hennessy Funds, expects the sector to continue the outperformance and attain a ‘three-peat’ next year.
Amid rising demand and continued supply tightness, Morgan Stanley expects crude oil to hit $110 per barrel by mid-2023.
As the sector appears to remain in a bright spot next year, fundamentally sound energy stocks Marathon Petroleum Corporation (MPC) and Adams Resources & Energy, Inc. (AE) could be ideal investments now.
Marathon Petroleum Corporation (MPC)
MPC operates as an integrated downstream energy company through two segments: Refining & Marketing and Midstream.
On November 1, the company’s board of directors declared a dividend of $0.75 per share on the common stock, indicating an increase of 30% from the previous quarter. The dividend was paid on December 12 to its shareholders.
MPC’s total revenues and other income rose 44.8% year-over-year for the third quarter that ended September 30, 2022, to $47.24 billion. The company’s adjusted net income increased 731.3% year-over-year to $3.86 billion, while its adjusted EPS grew 969.9% from the prior-year quarter to $7.81. Also, its adjusted EBITDA came in at $6.83 billion, up 182.9% year-over-year.
In terms of forward non-GAAP P/E, MPC is currently trading at 4.54x, 42.5% lower than the industry average of 7.88x. Its forward EV/Sales multiple of 0.44 is 76.1% lower than the industry average of 1.83. In addition, its forward Price/Sales ratio of 0.30 is 77% lower than the industry average of 1.32.
Street expects MPC’s revenue and EPS to increase 17.5% and 329.1% year-over-year to $41.84 billion and $5.58, respectively, in the fiscal fourth quarter (ending December 31, 2022). It has surpassed the EPS estimates in each of the trailing four quarters.
Shares of MPC have gained 82.6% over the past year and 79.9% year-to-date to close the last trading session at $115.12.
MPC’s POWR Ratings reflect this promising outlook. The stock's overall B rating translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Momentum and Quality and a B for Growth. In the 93-stock B-rated Energy – Oil & Gas industry, MPC is ranked #7. To see additional POWR Ratings for MPC for Value, Stability, and Sentiment, click here.
Adams Resources & Energy, Inc. (AE)
AE is engaged in the marketing, transportation, terminalling, and storing various crude oil and natural gas basins in the United States. The company operates through three segments: Crude Oil Marketing, Transportation, and Storage; Tank truck Transportation of Liquid Chemicals, Pressurized Gases, Asphalt, and Dry Bulk; and Pipeline Transportation, Terminalling, and Storage of Crude Oil.
On November 1, the company announced a repurchase of all its shares owned by KSA Industries, Inc., its largest stockholder. With this transaction, AE made significant returns to its existing shareholders and increased the intrinsic value of their stake in the company.
On September 1, AE announced that its subsidiary, Service Transport Company, has opened its 20th terminal in Pittsburgh, PA. This new facility is expected to bring additional revenue and profitability growth opportunities while serving as a base of operations for recruitment in the immediate area.
AE’s total revenues increased 50.1% year-over-year to $852.90 million for the third quarter ended September 30, 2022. Its operating earnings grew 30.2% from its prior-year quarter to $2.99 million, while its net earnings grew 41.6% from its year-ago value to $2.19 million. The company’s EPS improved by 38.9% from its year-ago value of $0.50.
In terms of forward EV/Sales, AE is currently trading at 0.01x, 99.3% lower than the industry average of 1.83x. Its forward EV/EBITDA multiple of 1.30 is 75.2% lower than the industry average of 5.23. In addition, its forward Price/Sales ratio of 0.03 is 97.9% lower than the industry average of 1.32.
The consensus EPS estimate of $3.37 for fiscal 2022 ending December 31, 2022, represents a 22.6% improvement year-over-year. The revenue estimate for the same period is expected to amount to $3.46 billion. The stock has gained 41.3% year-to-date to close the last trading session at $39.30.
AE’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 also has an A grade for Momentum and Sentiment and a B for Value and Quality. Within the same industry, it is ranked #4. Click here to see the other ratings of AE for Growth and Stability.
MPC shares were trading at $116.22 per share on Tuesday afternoon, up $1.10 (+0.96%). Year-to-date, MPC has gained 86.35%, versus a -18.13% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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