The global oil industry stands on the precipice of a significant transformation as OPEC+ nations limit their oil production. Additionally, amid the vigorous demand for oil and gas, Wall Street analysts project an upward trajectory in market performance, bolstering investor interest in this sector. Expectations of considerable profit gains especially favor companies already situated to capitalize on this industry-wide growth.
Given this backdrop, it could be wise to add fundamentally robust energy stocks Marathon Petroleum Corporation (MPC), ChampionX Corporation (CHX), and Liberty Energy Inc. (LBRT) to your portfolio now.
Before exploring the fundamentals of these stocks, let’s scrutinize the industry’s evolving dynamics.
In a drive for sustainable energy, over 140 nations worldwide have established net-zero emission objectives, thus hastening the transition toward renewable resources. Despite the increased adoption of clean energy solutions, the global oil and gas demand is anticipated to remain robust. In 2023, the International Energy Agency (IEA) expects global oil demand to increase by 2.4 million barrels per day (bpd) and 930,000 bpd by 2024.
This winter, meteorologists anticipate milder temperatures up until December 23, yet traditional cooling trends could augment U.S. gas demand in the Lower 48 states, including exports. LSEG predicts a rise from 121.3 billion cubic feet per day (bcfd) this week to 124.8 bcfd the following week and 127.3 bcfd in two weeks.
The United States stands on the edge of leapfrogging Australia and Qatar to emerge as the world's top supplier of Liquefied Natural Gas by 2023. Soaring oil prices, supply disruptions, and sanctions associated with the ongoing conflict in Ukraine have amplified international demand for U.S. exports.
Amid geopolitical unrest and voluntary production cuts by Saudi Arabia and Russia, oil prices could surge further. Analysts at UBS Group AG (UBS) and The Goldman Sachs Group, Inc. (GS) foresee a probable increase in oil prices because of the implementation of these voluntary cutbacks. Forecasted Brent oil prices for 2024 are expected to hover between $80 and $100.
In light of these encouraging trends, let's look at the fundamentals of the three energy stocks.
Marathon Petroleum Corporation (MPC)
MPC operates as an integrated downstream energy company primarily in the United States. It operates in two segments: Refining & Marketing and Midstream.
On October 25, MPC’s board of directors approved an increase to the quarterly dividend to $0.825 per share, payable to the shareholders on December 11, 2023. Its annualized dividend rate of $3.30 per share translates to a dividend yield of 2.31% on the current share price. Its four-year average yield is 3.85%.
MPC’s dividend payments have grown at CAGRs of 9.9% and 10.8% over the past three and five years, respectively. The company has a record of paying dividends for 12 consecutive years.
The Board of Directors approved an incremental $5 billion share repurchase authorization. With the addition of this new authorization, the company has a total of $8.3 billion available under its share repurchase authorizations as of October 27.
MPC’s trailing-12-month cash from operations of $17.38 billion is significantly higher than the industry average of $669.40 million. Its trailing-12-month ROCE, ROTC, and ROTA of 43.98%, 16.33%, and 12.84% are 120%, 75.6%, and 71.4% higher than the industry averages of 19.99%, 9.30%, and 7.49%, respectively.
In the fiscal third quarter, the company returned approximately $3.1 billion of capital to shareholders through $2.8 billion in share repurchases and $297 million of dividends.
In the fiscal third quarter that ended September 30, 2023, MPC’s total revenues and other income and income from operations stood at $41.58 billion and $4.75 billion, respectively. Its adjusted income per share increased 4.2% from the year-ago quarter to $8.14.
For the same quarter, adjusted net income attributable to MPC and adjusted EBITDA stood at $3.22 billion and $5.71 billion, respectively. As of September 30, 2023, its total current assets came at $36.28 billion, compared to $35.24 billion as of December 31, 2022.
Street expects MPC’s revenue and EPS for the fiscal fourth quarter ending December 2023 to be $35.40 billion and $2.80, respectively. The company surpassed consensus EPS estimates in each of the trailing four quarters and consensus revenue estimates in three of the trailing four quarters, which is impressive.
The stock has gained 34.7% over the past year to close the last trading session at $143.85. Over the past six months, it gained 27.3%.
MPC’s POWR Ratings reflect its positive prospects. The stock has an overall B rating, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has an A grade for Quality and a B for Momentum. Within the Energy – Oil & Gas industry, it is ranked #9 out of 85 stocks.
To see MPC's additional POWR Ratings for Growth, Value, Stability, and Sentiment, click here.
ChampionX Corporation (CHX)
CHX provides chemistry solutions and engineered equipment and technologies to oil and gas companies worldwide. The company operates through four segments: Production Chemical Technologies; Production & Automation Technologies; Drilling Technologies; and Reservoir Chemical Technologies.
The company demonstrated its commitment to return excess cash to its shareholders. Through $68 million share repurchases and regular cash dividends of $17 million, it returned 52% of cash from operating activities and 74% of its free cash flow to its shareholders in the third quarter.
On October 27, CHX paid its shareholders a regular quarterly dividend of $0.085 per share on the company’s common stock, par value of $0.01 per share. Its annual dividend of $0.34 translates to a 1.18% yield on the current price. Its four-year average dividend yield is 0.36%.
CHX’s trailing-12-month asset turnover ratio of 1.13x is 106.7% higher than the 0.55x industry average. Likewise, its trailing-12-month levered FCF margin of 13.05% is 122.6% higher than the industry average of 5.86%.
For the fiscal third quarter that ended September 30, 2023, CHX’s revenues stood at $939.78 million, while gross profit increased 48.5% year-over-year to $291.86 million. Its adjusted EBITDA stood at $189.54 million, up 14.1% from the year-ago quarter.
Adjusted net income attributable to CHX and adjusted earnings per share increased 19.3% and 24.2% year-over-year to $80.95 million and $0.41, respectively. For the nine months that ended September 30, 2023, cash and cash equivalents stood at $285.01 million, up 49.2% year-over-year.
Street expects CHX’s revenue for the fiscal fourth quarter ending December 2023 to be $954.98 million, while EPS is expected to be $0.45, representing a 4% year-over-year increase. It surpassed EPS estimates in three of the trailing four quarters.
The stock has gained 6.6% over the past year to close its last trading session at $28.87. Moreover, over the past six months, it has gained 3.8%.
CHX’s POWR Ratings reflect a robust outlook. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It also has a B grade for Momentum and Quality. Within the 49-stock Energy-Services industry, it is ranked #8.
Beyond what we’ve stated above, we have also rated the stock for Growth, Value, Stability, and Sentiment. Get all ratings of CHX here.
Liberty Energy Inc. (LBRT)
LBRT offers hydraulic services and related technologies to onshore oil and natural gas exploration and production companies in North America. The company provides hydraulic fracturing and complementary services like wireline services, proppant delivery solutions, data analytics, related goods, and technologies.
On October 17, LBRT’s board of directors declared a quarterly dividend of $0.07 per share of class A common stock, a 40% increase from the prior quarter's dividend. It is payable to the shareholders on December 20, 2023.
Its annualized dividend rate of $0.28 per share translates to a dividend yield of 1.57% on the current share price. Its four-year average yield is 0.95%. LBRT’s dividend payments have grown at CAGRs of 63.9% and 17.1% over the past three and five years, respectively.
The company returned $38 million to shareholders through share repurchases and a quarterly cash dividend. During the quarter that ended September 30, 2023, LBRT repurchased and retired 1,784,899 shares of Class A common stock at an average of $16.38 per share, representing 1% of shares outstanding, for approximately $29 million.
The company has cumulatively repurchased and retired 10.6% of shares outstanding at program commencement on July 25, 2022. The total remaining authorization for future common share repurchases is approximately $211 million.
LBRT’s trailing-12-month asset turnover ratio of 1.75x is 218.5% higher than the industry average of 0.55x. Its trailing-12-month ROCE, ROTC, and ROTA of 38.63%, 25.76%, and 19.97% are 93.2%, 177%, and 166.6% higher than the industry averages of 19.99%, 9.30%, and 7.49%, respectively.
For the fiscal third quarter that ended September 30, 2023, LBRT’s revenue increased 2.3% year-over-year to $1.22 billion. Its operating income grew 12.2% from the year-ago quarter to $205.23 million. Also, the company’s adjusted EBITDA stood at $319.21 million, up 15.3% year-over-year.
Furthermore, net income attributable to LBRT stockholders was $148.61 million and $0.85 per share, representing increases of 1.1% and 9% from the prior year quarter, respectively.
Street expects LBRT’s revenue and EPS for the fiscal year ending December 2023 to increase 14.7% and 24.7% year-over-year to $4.76 billion and $3.26, respectively. The company surpassed consensus revenue and EPS estimates in three of the trailing four quarters.
The stock has gained 25.4% over the past year to close the last trading session at $17.81. Over the past six months, it has gained 30.4%.
LBRT’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system.
The stock has a B grade for Value and Momentum. Within the Energy-Services industry, it is ranked #7.
Click here for LBRT’s additional POWR Ratings for Growth, Stability, Sentiment, and Quality.
What To Do Next?
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MPC shares were unchanged in premarket trading Tuesday. Year-to-date, MPC has gained 26.49%, versus a 22.14% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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