The energy sector is experiencing continued robust demand for oil and natural gas and supply disruptions amid voluntary cuts by OPEC+ members and Mexico and rising geopolitical tensions, particularly in the Middle East, leading to higher oil prices.
Given the industry tailwinds, it could be wise to buy fundamentally sound energy stocks Energy Transfer LP (ET), Koninklijke Vopak N.V. (VOPKY), and Forum Energy Technologies, Inc. (FET) for potential returns in May. These stocks are rated B (Buy) in our POWR Ratings system.
According to the U.S. Energy Information Administration (EIA), global oil consumption for 2024 and 2025 will be between 0.4 million b/d and 0.5 million b/d in both years. In addition, the agency expects residential electricity consumption to increase by around 4% this year compared to 2023, driven by hotter summer temperatures.
Meanwhile, EIA forecasts Brent crude oil spot price to average $90 per barrel (b) in the second quarter of 2024, $2/b higher than its March STEO and an average of $89/b this year.
The World Bank also warned that the outbreak of a major conflict in the Middle East could trigger an energy shock, pushing oil prices above $100 per barrel. Tensions in the Middle East heightened last month as Israel and OPEC member Iran appeared on the brink of war.
OPEC+ members extended voluntary oil output cuts of 2.2 million bpd to the second quarter. Besides, Mexico's state energy company, Pemex, planned to cut at least 330,000 bpd of crude exports in May to supply more to its domestic refineries for energy self-sufficiency.
The recent production cuts and geopolitical tensions are raising concerns over supply constraints. Amid this, non-OPEC+, led by the U.S., is expected to drive world supply growth through 2025. In 2024, global output is forecasted to surge by 770 kb/d to 102.9 mb/d, and non-OPEC+ production will expand by 1.6 mb/d. Also, next year, global growth will likely rise by 1.6 mb/d.
The global energy as a service (EaaS) market is expected to grow to $208.20 million by 2032, exhibiting a CAGR of 11.8% during the forecast period (2024-2032). Increasing investments in energy efficiency, innovative business models, personalized services, and rapid industrialization will drive market growth.
Given the industry’s robust outlook, investing in quality energy stocks such as ET, VOPKY, and FET could be wise for future gains.
Energy Transfer LP (ET)
ET provides energy-related services. It owns and operates a natural gas transportation pipeline, natural gas storage facilities, and nearly 20,090 miles of interstate natural gas pipeline. The company also sells natural gas to electric utilities, independent power plants, local distribution and other marketing companies, and industrial end-users.
On April 24, ET announced an increase in its quarterly cash distribution to $0.3175 per common unit for the first quarter ended March 31, 2024. This cash distribution reflects an increase of 3.3% compared to the first quarter of 2023 and will be paid on May 20, 2024, to unitholders of record as of the close of business on May 13, 2024.
ET pays an annual distribution of $1.27 per unit, which translates to a yield of 8.07% on the current share price. Its four-year average dividend yield is 9.73%. The company’s dividend payouts have grown at a CAGR of 10.8% over the past three years.
ET’s revenues increased marginally year-over-year to $20.53 billion during the fourth quarter that ended December 31, 2023. Its operating income grew 19.9% from the year-ago value to $2.16 billion. Net income attributable to partners came in at $1.33 billion and $0.37 per common unit, up 14.9% and 8.8% from the prior year’s quarter, respectively.
Furthermore, the company’s adjusted EBITDA increased 4.8% year-over-year to $3.60 billion. And its distributable cash flow rose 4.4% from the year-ago value to $2.45 billion.
Analysts expect ET’s revenue for the first quarter (ended March 2024) to increase 14.2% year-over-year to $10.76 billion, and its EPS for the same quarter is expected to grow 40.9% year-over-year to $0.37. For the fiscal year 2024, the company’s revenue and EPS are expected to grow 5.8% and 23.4% year-over-year to $41.03 billion and $1.97, respectively.
Shares of ET have surged 11% over the past month and 32.9% over the past year to close the last trading session at $15.48.
ET’s POWR Ratings reflect its robust 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 an A grade for Momentum and a B for Growth, Stability, and Value. It is ranked #9 out of 82 stocks in the Energy – Oil & Gas industry.
In addition to the POWR Ratings we’ve stated above, we also have other ratings of ET for Quality and Sentiment. Get all ET ratings here.
Koninklijke Vopak N.V. (VOPKY)
Headquartered in Rotterdam, Netherlands, VOPKY is an independent tank storage company that stores and handles liquid chemicals, gases, and oil products for the energy and manufacturing markets worldwide. It operates LPG and chemical gas, industrial, chemical, and oil terminals and owns and operates specialized facilities.
On March 10, 2024, VOPKY and Air Liquide signed a Memorandum of Understanding (MoU) to collaborate on the development and operation of infrastructure for ammonia import, cracking, and hydrogen distribution in Singapore.
The collaboration between the companies aims to support Singapore’s National Hydrogen Strategy to establish low-carbon hydrogen supply chains, accelerating the adoption and commercialization of industrial ammonia cracking in Singapore.
On November 21, 2023, VOPKY and IHI Corporation signed an MoU to jointly explore the development and operation of efficient, high-value-added ammonia terminals in Japan. The partnership is aimed at large-scale ammonia storage terminals strategically positioned for the economical distribution of ammonia.
During the first quarter that ended March 31, 2024, VOPKY reported revenues of €328.20 million ($350.42 million). Net profit attributable to holders of ordinary shares and EPS came in at €105.80 million ($112.97 million) and €0.87, up 2.6% and 3.6% year-over-year, respectively.
Also, the company’s EBITDA for the quarter was €235 million ($250.92 million). The company’s cash flows from operating activities increased 22.8% year-over-year to €278.80 million ($297.68 million).
Street expects VOPKY’s revenue for the fiscal year (ending December 2025) to increase 2.6% year-over-year to $1.42 billion. Furthermore, the company surpassed the consensus revenue estimates in three of the trailing four quarters.
Over the past month, VOPKY’s stock has gained 2.7% and 18% over the past six months to close the last trading session at $39.54.
VOPKY’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
The stock has an A grade for Momentum. It also has a B grade for Growth, Stability, and Quality. Within the Foreign – Oil & Gas industry, VOPKY is ranked #6 of 41 stocks.
Click here to access additional ratings of VOPKY for Sentiment and Value.
Forum Energy Technologies, Inc. (FET)
FET designs, manufactures, and distributes products serving the oil, natural gas, industrial, and renewable energy industries internationally. It operates through three segments: Drilling & Downhole; Completions; and Production. The company designs, manufactures, and supplies products and services for drilling, well construction, and artificial lift.
On January 5, FET acquired Variperm Energy Services, a leading manufacturer of customized downhole technology solutions providing sand and flow control products for heavy oil applications. The total consideration relative to the acquisition consists of $150 million of cash and 2 million shares of FET’s common stock.
The strategic acquisition aligns well with FET’s operations and will benefit both legacy FET and Variperm products. It enhances the company’s downhole and artificial lift product portfolio.
For the fiscal year that ended December 31, 2023, FET’s revenue increased 5.6% year-over-year to $738.90 million. Its gross profit grew 8.3% from the prior year to $204.20 million. The company’s adjusted operating income of $27.20 million indicates growth of 57.2% year-over-year.
In addition, the company’s adjusted EBITDA increased 14.3% from the previous year to $67.10 million. Its total current assets stood at $529.60 million as of December 31, 2023, compared to $512.90 million as of December 31, 2022.
Analysts expect FET’s revenue and EPS for the fiscal year 2025 to increase 5.4% and 92.3% year-over-year to $922.35 million and $2.14, respectively. Moreover, FET’s stock has plunged 7% over the past month to close the last trading session at $18.48.
FET’s POWR Ratings reflect its bright prospects. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
FET has a B grade for Sentiment, Momentum, Stability, and Growth. The stock is ranked #11 among 50 stocks in the Energy - Services industry.
To access FET’s other ratings, click here.
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ET shares were trading at $15.63 per share on Thursday afternoon, up $0.15 (+0.97%). Year-to-date, ET has gained 15.81%, versus a 5.98% rise in the benchmark S&P 500 index during the same period.
About the Author: Rjkumari Saxena
Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.
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