The increased demand for energy services, driven by rising oil and gas exploration and production worldwide, could keep the energy services industry on a positive growth trajectory.
Given this backdrop, let us explore energy services stocks ChampionX Corporation (CHX), MRC Global Inc. (MRC), and Geospace Technologies Corporation (GEOS), which are rated B (Buy) in our proprietary POWR Ratings system.
But before we delve deeper into the fundamentals of the stocks mentioned above, let us first briefly discuss the energy services sector.
Paris-based International Energy Agency (IEA) projects that global oil demand will grow by 2.4 million barrels per day (bpd) in 2023 and hit a record 105.7 million bpd by 2028, mainly driven by aviation and petrochemicals.
In addition, an oil supply crunch could be induced by the OPEC+ oil production cut continuation until the end of 2024 and Saudi Arabia’s voluntary oil production cuts by 1 million bpd starting in July.
According to Wood Mackenzie, the oil and gas exploration and production industry is expected to allocate a $470 billion capital outlay in 2023 to uplift the sector. As per Energy Information Administration’s (EIA) Short-Term Energy Outlook, U.S. crude oil production could gain 720,000 barrels daily this year, up from a previously forecast growth rate of 640,000 bpd.
Anticipating an increase in natural gas production in the Permian Basin in the short term, EIA Administrator Joe DeCarolis, said, “Drilling in the Permian Basin typically produces a blend of hydrocarbons that includes crude oil and natural gas. So as producers increase their crude oil production in the region, we expect natural gas production to increase as well.”
Exploration and production companies search for new sources of oil and gas, for which they require a range of services, including drilling, completion, production, and well intervention.
Therefore, on the backs of increasing demand, the global oilfield services market is expected to reach $468.58 billion at a remarkable CAGR of 5.9% between 2023 and 2030.
Given this backdrop, energy services stocks CHX, MRC, and GEOS, with notable fundamental strength, could be wise portfolio additions now.
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.
On May 11, CHX announced that its Board of Directors had declared a regular quarterly dividend of $0.085 per share on the company’s common stock, par value $0.01 per share, to be paid to shareholders on July 28. Its annual dividend of $0.34 translates to a 1.22% yield on the current price. Its four-year average dividend yield is 0.24%.
CHX’s revenues have grown at 52.7% and 29.6% CAGRs over the past three and five years, respectively. Moreover, its EBITDA and EBIT have grown at 48.4% and 71.3% CAGRs over the past three years, respectively.
CHX’s trailing-12-month asset turnover ratio of 1.13x is 74.4% higher than the 0.65x industry average. Likewise, its trailing-12-month levered FCF margin of 15.04% is 159.8% higher than the industry average of 5.79%.
For the fiscal first quarter that ended March 31, 2023, CHX’s revenues increased 9.5% year-over-year to $948.35 million. Adjusted net income attributable to CHX and adjusted earnings per share increased 61.6% and 63.6% year-over-year to $73.59 million and $0.36, respectively.
Moreover, its cash and cash equivalents and restricted cash stood at $248 million, indicating an increase of 37.3% from the previous year’s quarter. For the same quarter, its free cash flow stood at $69.35 million, compared to a negative $60.99 million in the year-ago quarter.
The consensus revenue and EPS estimates of $984.94 million and $0.44 for the fiscal quarter ending June 2023 represent 5.6% and 56.8% increases year-over-year, respectively. It surpassed EPS estimates in all four trailing quarters, which is impressive.
The stock has gained 21.9% over the past year to close its last trading session at $27.99. Moreover, over the past month, it has gained 8.8%.
CHX’s POWR Ratings reflect a robust outlook. It has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.
It also has a B grade for Growth, Momentum, and Quality. It is ranked #7 within the 45-stock B-rated Energy – Services industry.
To access additional ratings for CHX’s Value, Stability, and Sentiment, click here.
MRC Global Inc. (MRC)
MRC distributes pipes, valves, fittings, and other infrastructure products and services to the energy, industrial, and gas utility end markets in the United States, Canada, and internationally. Its products are used in the construction, maintenance, repair, and overhaul of equipment used in extreme operating conditions.
MRC’s revenue has grown at 0.19% CAGR over the past three years. Moreover, its EBITDA, EBIT, and net income have grown at 9.6%, 19.5%, and 45.8% CAGRs over the past three years, respectively.
MRC’s trailing-12-month asset turnover ratio of 1.84x is 130.8% higher than the 0.80x industry average. Likewise, its trailing-12-month ROCE and ROTC of 18.38% and 8.14% are 31.8% and 16.7% higher than the industry averages of 13.94% and 6.97%, respectively.
MRC’s sales for the fiscal first quarter that ended March 31, 2023, came in at $885 million, up 19.3% year-over-year. Its gross profit for the quarter stood at $179 million, indicating a 31.6% increase from the year-ago quarter. Adjusted net income attributable to MRC and net income per share stood at $27 million and $0.32, up 80% and 88.2% year-over-year, respectively.
MRC’s adjusted EBITDA increased 43.8% year-over-year to $69 million. Moreover, its total current assets stood at $1.27 billion as of March 31, 2023, compared to $1.14 billion as of December 31, 2022.
Analysts expect MRC’s revenue and EPS to increase 7.9% and 40.7% year-over-year to $914.68 million and $0.38 for the fiscal second quarter ending June 2023. It surpassed revenue and EPS estimates in three of the trailing four quarters.
Over the past three months, the stock has gained 4.2% to close its last trading session at $9.90. Moreover, it has gained 14.1% over the past month.
It’s no surprise that MRC has an overall B rating, which equates to Buy in our POWR Ratings system.
It has an A grade for Growth and a B for Value, Momentum, and Sentiment. It is ranked #5 within the same industry.
Beyond what we have highlighted above, we have also given MRC additional ratings for Stability and Quality here.
Geospace Technologies Corporation (GEOS)
GEOS operates as a designer and manufacturer of instruments and equipment used in the oil and gas industry for acquiring seismic data used to locate, characterize, and monitor hydrocarbon-producing reservoirs. The company operates through Oil & Gas Markets; Adjacent Markets; and Emerging Markets segments.
On June 12, GEOS’ subsidiary Aquana, LLC., announced the release of the latest product in the Water IoT platform, known as the Actuator Valve Serial (AVS). This would improve employee safety while reducing operating expenses for water utilities by allowing remote start, stop, or reduced water delivery to specific locations without sending service personnel to the field.
GEOS’ trailing-12-month levered FCF margin of 7.01% is 21.1% higher than the industry average of 5.79%. Its trailing-12-month asset turnover ratio of 0.77x is 18.8% higher than the industry average of 0.65x.
GEOS’ revenue has grown at 4.6% and 8.7% CAGRs over the past three and five years, respectively. Moreover, its EBITDA has grown at 4.5% CAGR over the past three years.
GEOS’ total revenue increased 27% year-over-year to $31.37 million for the fiscal second quarter that ended March 31, 2023. This can be attributed to a rise in rental revenue by 336% from the prior-year period to $13.67 million. Its gross profit for the same quarter stood at $12.95 million, up 90.1% year-over-year.
The company’s net income and income per common share for the same quarter stood at $4.64 million and $0.35, compared to the net loss and net loss per common share of $1.47 million and $0.11, respectively, for the year-ago quarter.
For the six months that ended March 31, 2023, GEOS’ cash and cash equivalents stood at $22.81 million compared to $8.21 million for the six months that ended March 31, 2022.
GEOS’ President and CEO, Walter R. Wheeler, said, “We believe the company’s path to profitability through conservative management, a strong balance sheet, and market cultivation will continue to yield positive results.”
The stock has gained 100.5% over the past six months to close its last trading session at $8.02. Also, the stock gained 27.3% over the past three months.
GEOS’ promising prospects are reflected in its POWR Ratings. It has an overall B rating, which translates to Buy in our proprietary rating system.
The stock has a B grade for Growth, Momentum, Sentiment, and Quality. It is ranked #4 within the same industry.
Click here for additional POWR Ratings for Value and Stability for GEOS.
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CHX shares were trading at $28.15 per share on Thursday afternoon, up $0.16 (+0.57%). Year-to-date, CHX has declined -2.34%, versus a 15.74% 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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