Energy continues to be the best-performing sector so far this year, despite several macroeconomic and geopolitical headwinds. Following Russia’s invasion of Ukraine in February, oil and gas prices jumped in the first quarter of 2022 on high demand and deepening supply chain issues exacerbated by Western sanctions on Russia. The surging prices have boosted the profits and share prices of major energy companies.
Furthermore, as the supply crunch continues, oil and gas prices are expected to soar in the near term. On Tuesday, gasoline prices hit a new record-high of $4.37, which was a fraction higher than the all-time high of $4.33 hit on March 11. Last week, crude oil was trading near $100 per barrel and is now proceeding toward $110. The bullish sentiment surrounding the energy sector is evident in Energy Select Sector SPDR ETF’s (XLE) 43.1% gains over the past year.
Given the bright growth prospects, we think it could be profitable to invest in fundamentally sound under-the-radar energy stocks like Imperial Oil Limited (IMO), Repsol, S.A. (REPYY), and Tenaris S.A. (TS).
Imperial Oil Limited (IMO)
Headquartered in Calgary, Canada IMO explores for, produces, and sells crude oil, synthetic oil, and natural gas in Canada. The company operates through three segments: Upstream; Downstream; and Chemical. Its Upstream segment has 386 million oil-equivalent barrels of proved underdeveloped reserves. It also sells petroleum products to industrial and transportation customers. Its Chemical segment manufactures various petrochemicals, benzene and aliphatic solvents, and plasticizer intermediates.
Last month, IMO declared a 34 cent quarterly dividend per share on its outstanding common shares, which is payable on July 1 to shareholders. The quarterly dividend declaration reflects the company’s strong financial performance and ability to deliver the value of its earnings to shareholders.
IMO's total revenues and other income increased 81.3% year-over-year to CAD12.69 billion ($9.75 billion) in its fiscal year 2022 first quarter, ended March 31, 2022. Its income before income taxes improved 199.6% year-over-year to CAD1.53 billion ($1.18 billion). The company’s net income and net income per common share came in at CAD 1.17 billion ($899.16 million) and CAD 1.75, respectively, registering an increase of 199.2% and 230.2% from the year-ago value. In addition, its cash inflow from operating activities grew 83.2% year-over-year to CAD1.91 billion ($1.47 billion).
Analysts expect IMO’s EPS to grow 348.5% in price year-over-year to $1.80 for its fiscal 2022 second quarter, ending June 30, 2022. The $11.63 billion consensus revenue estimate for the current quarter represents an 80.4% rise from the prior year. The stock has gained 32% in price year-to-date and 55.7% over the past year. It closed yesterday's trading session at $48.29.
IMO's POWR Ratings reflect this promising outlook. It has an overall B grade, which equates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
IMO has a grade of A for Momentum and B for Growth and Quality. Within the A-rated Foreign Oil & Gas industry, it is ranked #25 of 42 stocks.
To see additional POWR Ratings (Value, Stability, and Sentiment) for IMO, click here.
Repsol, S.A. (REPYY)
REPYY is an integrated energy company that is headquartered in Madrid, Spain. The company operates through three segments: Exploration and Production; Industrial; and Commercial and Renewables. It explores for, develops, and produces crude oil and natural gas reserves and sells and transports crude oil and oil products, natural gas, and liquified natural gas (LNG). In addition, it engages in low-carbon power generation and renewable sources.
On May 9, REPYY implemented a share capital reduction through the redemption of treasury shares. REPYY’s share capital has been reduced to€75 million ($57.6 million) through the redemption of 75,000,000 treasury shares with a par value of €1 ($0.77) each. This move is expected to contribute to the company’s shareholder remuneration by increasing the company’s profit per share.
Last month, REPYY commenced electricity production at Jicarilla 2, its first solar plant in the U.S. The plant has a total installed capacity of 62.5 megawatts (MW), which is expected to supply electricity to 16,000 homes. It is situated in Rio Arriba County, New Mexico, and might boost the company’s revenue streams and global growth.
In its fiscal year 2022 first quarter, ended March 31, 2022, REPYY's sales grew 72.5% year-over-year to €17.25 billion ($13.26 billion), while its operating net income increased 96.5% from the year-ago value to €1.96 billion ($1.51 billion). The company's net income before tax rose 107.8% year-over-year to €2.17 billion ($1.67 billion), and its EBITDA improved 85.2% year-over-year to €2.85 billion ($2.19 billion). Its net income and earnings per share attributable to the parent came in at €1.41 billion ($1.08 billion) and €0.94, respectively, registering an increase of 116.5% and 129.3% from the prior-year period.
The stock has increased 12.8% in price over the past six months and 10% over the past year and closed yesterday's trading session at $14.46.
REPYY's strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which translates to Strong Buy in our proprietary rating system.
REPYY has a grade of A for Momentum and a B for Stability, Value, and Sentiment. Within the Foreign Oil & Gas industry, it is ranked #9 of 42 stocks.
To see additional POWR Ratings (Growth and Quality) for REPYY, click here.
Tenaris S.A. (TS)
Headquartered in Luxembourg, Luxembourg, TS produces and sells welded tubular products and provides related services for the oil and gas industry. The company offers steel casings, mechanical and structural pipes, tubing products, premium joints and couplings, and coiled tubing products for oil and gas drilling and workovers. In addition, it offers sucker rods, industrial equipment, and utility conduits for buildings and sells energy and raw materials.
TS's net sales increased 100.3% year-over-year to $2.37 billion in its fiscal 2022 first quarter, ended March 31, 2022. Its operating income improved 830.8% year-over-year to $484 million. In addition, its EBITDA grew 219.9% from the prior-year period to $627 million. The company’s net income and earnings per share amounted to $503 million and $0.43, respectively, indicating an increase of 398% and 377.8% year-over-year.
Analysts expect TS's revenue for its fiscal 2022 second quarter, ending June 30, 2022, to come in at $2.67 billion, representing a 74.6% rise year-over-year. It has surpassed the consensus revenue estimates in each of the trailing four quarters. The Street expects the company's EPS for the same quarter to come in at $0.87, representing an 88.6% increase year-over-year. Furthermore, the company has surpassed the consensus EPS estimates in each of the trailing four quarters.
Shares of TS have increased 42.4% in price year-to-date and 27.5% over the past year and closed yesterday's trading session at $29.70.
TS’s POWR Ratings reflect a strong outlook. The stock has an overall rating of B, which translates to Buy in our POWR Ratings system.
TS has an A grade for Momentum and Sentiment and a B for Quality. It is ranked #17 of 33 stocks in the A-rated Steel industry.
Click here to see TS’s POWR Ratings for Stability, Value, and Growth.
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IMO shares were trading at $48.52 per share on Wednesday afternoon, up $0.23 (+0.48%). Year-to-date, IMO has gained 35.21%, versus a -16.13% 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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