Following an exceptional performance last year, the energy sector is expected to maintain its growth momentum in 2023. The strength in demand, primarily driven by Asian countries, and weakness in supplies as Saudi announced more production cuts in addition to previously announced OPEC+ cuts could considerably lift oil and gas prices this year.
Therefore, investors are buying fundamentally sound energy stocks Energy Transfer LP (ET), Cheniere Energy, Inc. (LNG), and Weatherford International plc (WFRD) for solid returns.
The energy sector performed exceptionally well in 2022 as high demand worldwide and constrained supplies due to the Russia-Ukraine war fueled energy prices. This year, the sector is expected to maintain its growth momentum, driven by continued demand and supply dynamics.
According to the latest International Energy Agency (IEA) Oil Market Report (OMR), global oil demand is expected to grow by 2.4 million barrels per day (mb/d) this year to a new record of 102.30 mb/d driven by substantial demand from China. China’s rebound remains persistent, with its oil demand reaching an all-time high of 16.3 mb/d in April.
Despite expected weakness in the global economy and the possibility of further interest rate hikes, higher demand from China and recent production cuts could lift oil prices in 2023. In addition to volatile crude oil prices, gas prices will likely remain elevated amid solid demand for gasoline and tight supplies.
Earlier this month, the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, announced that it will stick to its 2023 oil production targets and will limit combined oil production to 40.463 mb/d over January-December 2024. Earlier, the alliance agreed to a 2 mb/d output cut in October 2022.
Also, in April this year, some OPEC+ members announced voluntary cuts to their oil production of approximately 1.16 mb/d in a surprise move. In addition to the 3.66 million bpd cuts by OPEC+ pledged for this year, the world’s top oil exporter Saudi Arabia announced further voluntary output cuts.
Saudi’s energy ministry announced that Riyadh would implement an additional 1 mb/d starting this July, which can be extended. The Kingdom’s production will decline to 9 mb/d from around 10 mb/d in May, and the total output cut will be 1.5 mb/d. Furthermore, Russia extended its voluntary oil production cut of 500,000 barrels per day until the end of 2024.
Given the energy sector’s solid growth outlook, quality energy stocks ET, LNG, and WFRD could be ideal investments for potential gains.
Let’s discuss the fundamentals of these stocks in detail:
Energy Transfer LP (ET)
ET offers energy-related services. The company owns and operates one of the largest and most diversified portfolios of energy assets in the United States, with nearly 120,000 miles of pipeline and associated energy infrastructure. ET’s strategic network comprises 41 states with assets in all the major production basins nationwide.
ET raised its 2023 financial outlook. Given the company’s acquisition of Lotus Midstream Operations, LLC, and continued increasing demand, the Partnership now expects adjusted EBITDA for the full year to be between $13.05 billion and $13.45 billion, up from the prior guidance of $12.09 billion to $13.30 billion. Also, it expects its 2023 growth capital expenditures to be about $2 billion.
On April 26, ET’s Board of Directors announced a quarterly cash distribution for the first quarter of 2023 of $0.3075 per common unit or $1.23 per common unit on an annualized basis. This cash distribution increased from $0.305 per common unit for the fourth quarter of 2022 and was paid on May 22, 2023.
The Partnership expects to make ongoing quarterly increases to its common unit distribution of $0.0025 (or $0.01 on an annualized basis) and is now targeting a 3% to 5% distribution growth rate. The company’s annual dividend translates to a 9.84% yield on the current share price. Its four-year dividend yield is 10.34%.
ET’s forward EV/Sales of 1.15x is 38.8% lower than the 1.88x industry average, while the stock’s forward Price/Book multiple of 1.23 is 13.1% lower than the industry average of 1.42. Moreover, its forward Price/Sales multiple of 0.45 is 62.9% lower than the industry average of 1.20.
ET’s operating income increased 11.7% year-over-year to $2.06 billion for the first quarter that ended March 31, 2023. The company’s adjusted EBITDA grew 2.8% year-over-year to $3.43 billion. In addition, as of March 31, 2023, its current assets and total assets were $11.37 billion and $104.52 billion, respectively.
Analysts expect ET’s EPS for the fiscal year (ending December 2024) to increase 6.1% year-over-year to $1.56. Also, the company’s EPS is expected to grow 5.2% per annum over the next five years. Shares of ET have gained 7.6% year-to-date and 27.7% over the past month to close the last trading session at $12.50.
ET’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
ET has a B grade for Value and Momentum. The stock is ranked #4 in the 92-stock Energy - Oil & Gas industry.
In addition to the above-mentioned POWR Ratings, one can access ET’s additional ratings for Growth, Stability, Sentiment, and Quality here.
Cheniere Energy, Inc. (LNG)
LNG is an energy infrastructure company that engages in liquefied natural gas (LNG) related businesses in the United States. The company owns and operates the Sabine Pass LNG terminal in Cameron Parish, Louisiana, and the Corpus Christi LNG terminal near Corpus Christi, Texas. Also, it owns the Creole Trail pipeline and operates the Corpus Christi pipeline.
On June 21, LNG’s subsidiary, Cheniere Marketing, LLC, and Equinor ASA signed a long-term LNG sale and purchase agreement (SPA). Under the SPA, Equinor agreed to purchase nearly 1.75 million tonnes per annum of LNG from Cheniere Marketing. This SPA underscores LNG and Equinor’s shared vision of an energy future built upon flexible, reliable, and cleaner solutions.
“This SPA is expected to provide further commercial support to the SPL Expansion Project, which we continue to rigorously develop in order to meet the world’s growing demand for secure, long-term energy supplies and the economic and environmental benefits of Cheniere’s LNG,” said Jack Fusco, Cheniere’s President, and CEO.
On May 16, LNG announced that its subsidiary, Cheniere Marketing entered into a long-term LNG SPA with Korea Southern Power Co. Ltd (KOSPO). Under the contract, KOSPO agreed to purchase nearly 0.4 million tonnes per annum of LNG from Cheniere Marketing from 2027 through 2046, with a small annual quantity to be delivered starting in 2024.
This long-term SPA is expected to support LNG’s SPL Expansion Project and boost the company’s revenue streams.
In addition, LNG raised its 2023 financial guidance. The company expects consolidated adjusted EBITDA of $8.20-$8.70 billion, higher than the prior guidance of $8-$8.50 billion. In addition, LNG’s full-year distributable cash flow is expected to come between $5.70 billion and $6.20 billion, compared to the previous guidance of $5.50-$6 billion.
In terms of forward P/E, LNG’s 4.72x is 43.7% lower than the 8.37x industry average. Likewise, the stock’s 5.54x forward EV/EBIT is 31.2% lower than the 8.05x industry average.
For the first quarter that ended March 31, 2023, LNG’s income from operations was $7.99 billion, compared to a loss of $613 million a year ago. Its adjusted EBITDA grew 14.2% year-over-year to $3.60 billion. The company’s net income was $5.43 billion, compared to a loss of $865 million in the previous year’s quarter.
Furthermore, LNG’s net income attributable to common stockholders came in at $22.10 versus a net loss per share of $3.41 in the prior-year period. As of March 31, 2023, the company’s cash and cash equivalents stood at $2.95 billion, compared to $1.35 billion as of December 31, 2022.
For the fiscal year 2023, LNG’s EPS is estimated to increase 415.1% year-over-year to $29.03. In addition, analysts expect the company’s EPS to grow 24.8% per annum over the next five years.
The stock has gained 5.7% year-to-date and 18.7% over the past year to close the last trading session at $148.56.
LNG’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
LNG has a B grade for Value, Momentum, Quality, and Sentiment. It is ranked first among 92 stocks in the Energy - Oil & Gas industry.
To access additional ratings for LNG’s Stability and Growth, click here.
Weatherford International plc (WFRD)
WFRD is an energy services company that offers equipment and services for the drilling, evaluation, completion, production, and intervention of oil, geothermal, and natural gas wells globally. The company operates through three segments: Drilling and Evaluation; Well Construction and Completions; and Production and Intervention.
On June 8, WFRD was awarded a three-year contract with Aramco to deliver drilling services. Under the deal, WFRD would deploy its Drilling Services portfolio, which includes a suite of technology that combines world-class services, real-term information analysis, and innovative drilling tools. Deploying these offerings would add value to Aramco’s drilling operations.
This award showcases the value of WFRD’s comprehensive portfolio of drilling services and technologies.
On April 20, the company issued a notice to redeem the remaining $105 million of its 11% Senior Unsecured Notes due 2024 at a redemption price of 102.750% of the principal amount, plus accrued and unpaid interest, excluding the redemption date. The redemption has been considered a crucial step towards its capital structure improvement.
WFRD’s President and CEO, Girish Saligram, expects WFRD’s overall revenue to grow by mid-teens year-over-year in 2023, and adjusted EBITDA margins are projected to expand by at least 250 basis points year-over-year.
WFRD’s forward EV/Sales of 1.22x is 35.1% lower than the 1.88x industry average, while the stock’s forward Price/Sales multiple of 0.91 is 24.7% lower than the industry average of 1.20.
For the first quarter that ended March 31, 2023, WFRD’s total revenues increased 26.4% year-over-year to $1.19 billion. The company’s adjusted EBITDA grew 78.1% from the year-ago value to $269 million. In addition, net income attributable to WFRD was $72 million or $0.97 per share, compared to a net loss of $80 million or $1.14 in the prior-year quarter.
The consensus EPS estimate of $1.14 for the fiscal year (ending December 2023) indicates a 1,189.2% year-over-year increase. The consensus revenue estimate of $4.98 billion for the ongoing year indicates a growth of 14.9% year-over-year. Moreover, WFRD topped consensus revenue estimates in each of the trailing four quarters, which is impressive.
Over the past year, shares of WFRD have gained 180.1% to close the last trading session at $62.64. The stock has gained 24.9% over the past six months.
WFRD’s POWR Ratings reflect a strong outlook. The company has an overall rating of B, which translates to a Buy in our proprietary rating system.
WFRD has an A grade for Growth and a B for Momentum and Quality. The stock is ranked #2 of 92 stocks in the same industry.
Beyond what we stated above, we also have WFRD’s ratings for Stability, Value, and Sentiment. Get all WFRD ratings here.
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ET shares rose $0.03 (+0.24%) in premarket trading Monday. Year-to-date, ET has gained 10.48%, versus a 14.13% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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