The energy sector remains robust amidst escalating geopolitical tensions, resilient demand, technological advancements, and production cuts. Considering that, it could be wise to buy energy stocks Plains All American Pipeline, L.P. (PAA), Archrock, Inc. (AROC), and Newpark Resources, Inc. (NR) this week.
Shale production, which accounts for approximately three-quarters of total U.S. oil output, is on the upswing thanks to enhanced well productivity. The U.S. Energy Information Administration (EIA) projects that oil output from key shale-producing regions will hit a six-month peak in June, reaching 9.85 million barrels per day (bpd), the highest level since December. Moreover, recently, the International Energy Agency (IEA) stated that global oil demand growth is anticipated to be at 1.1 million barrels per day (bpd) this year.
Additionally, recent U.S. economic indicators, including lower-than-expected consumer prices in April, have raised expectations of interest rate cuts, fueling optimism about global oil demand. On top of that, China's crude oil imports surged year-on-year in April, which indicates growing demand. Data from the General Administration of Customs revealed imports totaling 44.72 million metric tons, approximately 10.88 million barrels per day (bpd), marking a 5.45% increase from the previous year's 10.40 million bpd.
Besides, the anticipated rise in oil demand is set to favor companies engaged in drilling, evaluation, production, and maintenance services. The global oilfield services market is anticipated to grow at a CAGR of 6.5% to reach $175.03 billion by 2031.
Further, investors’ interest in energy stocks is evident from the Vanguard Energy ETF’s (VDE) 20.1% returns over the past year.
In light of these encouraging trends, let’s look at the fundamentals of the three energy stocks.
Plains All American Pipeline, L.P. (PAA)
PAA engages in the pipeline transportation, terminaling, storage, and gathering of crude oil and natural gas liquids (NGL) in the United States and Canada. The company operates through two segments, Crude Oil and NGL.
PAA pays an annual dividend of $1.27 per share, which translates to a dividend yield of 7.27% on the current share price. Its four-year average yield is 8.19%. PAA’s dividend payments have grown at a 17.6% CAGR over the past three years.
PAA’s forward Price/Sales of 0.26x is 82.5% lower than the industry average of 1.49x. Likewise, its forward EV/Sales multiple of 0.50 is 75.6% lower than the industry average of 2.04. Its forward Price/Book of 1.49x is 9% lower than the industry average of 1.64x.
In the first quarter that ended March 31, 2024, PAA’s revenues were reported at $12 billion. Adjusted EBITDA attributable to PAA rose marginally from the prior-year quarter to $718 million. Moreover, it reported adjusted net income attributable to PAA of $354 million, up 2.9% year-over-year. Its adjusted net income per common unit remained flat at $0.41.
Analysts expect PAA’s revenue and EPS for the second quarter (ending June 2024) to increase 7.9% and 12.9% year-over-year to $12.52 billion and $0.28, respectively. Furthermore, the company surpassed the consensus EPS estimates in each of the trailing four quarters, which is impressive.
Shares of PAA have gained 31.4% over the past year to close the last trading session at $17.48.
PAA’s solid fundamentals are reflected in its POWR Ratings. 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, each weighted to an optimal degree.
PAA has an A grade for Momentum and a B for Value. It is ranked #10 among 25 stocks in the A-rated MLPs - Oil & Gas industry.
Click here to access additional PAA ratings (Growth, Quality, Sentiment, and Stability).
Archrock, Inc. (AROC)
AROC is an energy infrastructure company in the United States. The company has two segments: Contract Operations and Aftermarket Services. It designs, sources, owns, installs, operates, services, repairs, and maintains its own fleet of natural gas compression equipment to provide natural gas compression services.
AROC pays an annual dividend of $0.66 per share, which translates to a dividend yield of 3.10% on the current share price. Its four-year average yield is 6.45%. AROC’s dividend payments have grown at a 3.3% CAGR over the past three years.
AROC’s trailing-12-month PEG of 0.20x is 42.2% lower than the industry average of 0.35x.
In the first quarter that ended March 31, 2024, AROC’s total revenue increased 16.8% year-over-year to $268.49 million. Its net income grew 145.8% from the prior year’s quarter to $40.53 million. The company’s net income per common share was $0.26, up 160% year-over-year. Also, the company’s adjusted EBITDA rose 34.8% year-over-year to $131.02 million.
Street predicts AROC’s revenue for the fiscal second quarter ending June 2024 to increase 9.3% year-over-year to $270.60 million. Its EPS for the same quarter is expected to rise 62.5% year-over-year to $0.26. Moreover, the company has an excellent earnings surprise history, surpassing consensus revenue estimates in each of the trailing four quarters.
Over the past six months, AROC’s stock has gained 48.1% to close the last trading session at $21.32.
AROC’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
AROC has an A grade for Momentum and a B for Sentiment, Quality, and Growth. It is ranked #13 out of 51 stocks in the Energy - Services industry.
Beyond the POWR Ratings we’ve stated above, we also have AROC ratings for Value and Stability. You can get all AROC ratings here.
Newpark Resources, Inc. (NR)
NR provides products, rentals, and services primarily to the oil and natural gas exploration and production (E&P) industry. It operates through two segments, Fluids Systems and Industrial Solutions.
NR’s forward Price/Sales of 0.91x is 40.4% lower than the industry average of 1.52x. Likewise, its forward EV/Sales multiple of 1.02 is 50.2% lower than the industry average of 2.04.
During the first quarter that ended March 31, 2024, NR’s revenue was reported at $169.11 million. Its adjusted net income came in at $8.86 million, up 8.2% over the prior-year quarter. Adjusted net income per common share rose 11.1% year-over-year to $0.10. Additionally, the company’s adjusted EBITDA grew 1.5% year-over-year to $21.28 million.
NR’s revenue for the fiscal year (ending December 31, 2024) is expected to be $696.67 million. Its EPS for the same year is expected to rise 15.1% year-over-year to $0.36. Also, it surpassed the consensus EPS estimates in three of the trailing four quarters.
Over the past year, NR’s stock has gained 105.8% to close the last trading session at $7.84.
NR’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 stock has an A grade for Momentum and Sentiment and a B for Growth. Within the Energy - Services industry, NR is ranked #4.
To access additional ratings of NR for Stability, Value, and Quality, click here.
What To Do Next?
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PAA shares were unchanged in premarket trading Tuesday. Year-to-date, PAA has gained 19.79%, versus a 11.87% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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