With Saudi Arabia deciding to extend its voluntary crude oil production cut, strikes in a major LNG facility in Australia, and droughts in Panama, the outlook for demand for conventional energy is expected to remain tight in the foreseeable future. The consequent tailwinds could brighten the prospects of quality energy stocks Marathon Oil Corporation (MRO), PBF Energy Inc. (PBF), and MV Oil Trust (MVO).

Consumers have been above and beyond to compensate for the years spent indoors trying out-of-home experiences with virtual ones. As a result, air carriers are turning to bigger airplanes, even on shorter routes, and jumbo-jets, such as the Boeing 747 and the Airbus A380, are being brought back to help ease airport congestion and work around pilot shortages.

However, despite macroeconomic headwinds, supply has struggled to keep up with the demand. After Saudi Arabia-led OPEC+ surprise announcement of a cut of more than a million barrels of output a day and a reduction of 2 million barrels a day agreed upon in October 2022, the heavyweight oil producer has decided to extend its production cut into September of this year.

This has taken about 3% of the world’s petroleum production off the market in seven months. The redrawing of the global energy map and shifting geopolitical inclinations in the Middle East since the beginning of the conflict in Ukraine has been nothing short of a windfall for U.S. energy producers. The U.S. has “gone from (being) a very domestically focused market into an international powerhouse.”

American crude oil production is going through a purple patch and is set to have a record-breaking couple of years. The EIA forecasts that U.S. crude oil production will average 12.4 million bpd in 2023 and 12.8 million bpd in 2024. This has been countering OPEC+ production cuts and keeping prices in check.

With the surge in gas price in Europe in anticipation of a potential strike at an LNG facility in Australia and a Panama Canal pile-up due to drought placing further constraints on supply, both OPEC and the Paris-based International Energy Agency forecast a pickup in demand that could lead to supply tightness. This could translate into upside potential for U.S. energy producers as well as the businesses serving them.

With the above context, let’s take a closer look at the featured stocks.

Marathon Oil Corporation (MRO)

As an exploration and production company, MRO explores, produces, and markets crude oil, condensate, and natural gas liquids (NGLs) in both domestic and international markets. The company operates through two geographical segments: United States and International.

On July 26, MRO announced that its board of directors declared a dividend of 10 cents per share of common stock. The dividend is payable on September 11, 2023, to stockholders of record on August 16, 2023.

MRO pays $0.40 annually as dividends, which translates to a 1.57% yield at the current price. The company’s dividend payouts have grown at a 14.3% CAGR over the past five years.

During the fiscal year 2023 second quarter, MRO’s total revenue and other income amounted to $1.51 billion, while its income from operations came in at $454 million. During the same period, the company’s adjusted net income came in at $295 million, or $0.48 per share.

Moreover, MRO returned $434 million (consisting of share repurchases worth $372 million and $62 million base dividend) to shareholders during the second quarter, an approximate 10% increase from first quarter 2023 shareholder distributions.

MRO’s trailing 12-month gross profit and net income margins of 78.06% and 30.56% surpass the respective industry averages of 47.34% and 14.13%. Moreover, due to the consistent capital discipline through share repurchases and dividend payouts, its trailing-12-month Return on Capital Employed (ROCE), Return on Total Capital (ROTC), and Return on Total Assets (ROTA) of 17.97%, 9.59%, and 10.27% also exceed its 5-year averages of 7.34%, 3.76%, and 4.24%, respectively.

Analysts expect MRO’s revenue and EPS for the fiscal third quarter to increase sequentially by 10.7% and 22.9% to $1.65 billion and $0.59, respectively. Moreover, the company has impressed by surpassing consensus EPS estimates in each of the trailing four quarters.

The stock has gained marginally over the past month to close the last trading session at $25.52.

MRO’s qualitative superiority is reflected in its POWR Ratings. The stock has been rated B for Sentiment and Quality. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

MRO is ranked #63 of 87 stocks in the Energy – Oil & Gas industry. Click here for additional ratings for Growth, Value, Momentum, and Stability of MRO.

PBF Energy Inc. (PBF)

As an independent petroleum refiner, PBF supplies unbranded transportation fuels, heating oil, petrochemical feedstocks, lubricants, and other petroleum products in the United States. The company operates in two segments: Refining and Logistics.

On August 14, PBF announced the pricing of its $500 million in aggregate principal amount of 7.875% senior notes due 2030 at an issue price of 99.324% in a private offering. The company intends to use the net proceeds from the offering and cash on hand to fund the redemption of its 7.25% Senior Notes due 2025.

On August 3, PBF announced that it would pay a quarterly dividend of $0.20 per share of Class A common stock on August 31, 2023. The company pays $0.80 annually as dividend of $0.60 per share, which translates to a yield of 1.73% at the current price.

On June 28, Eni Sustainable Mobility Spa and PBF closed the 50-50 joint venture partnership in St. Bernard Renewables LLC (SBR), an operating bio refinery co-located with PBF’s Chalmette Refinery in Louisiana. The strategic partnership should leverage the experience and expertise of Eni Sustainable Mobility and PBF.

For the first six months of the fiscal year 2023 that ended June 30, PBF’s revenue came in at $18.45 billion, while its income from operations increased by 6.9% year-over-year to $1.92 billion. Consequently, the company’s adjusted fully converted net income increased by 18.5% and 11.4% year-over-year to $1.41 billion, or $10.67 per share.

PBF’s trailing 12-month EBITDA and net income margins of 8.36% and 7.36% comfortably exceed the 5-year averages of 1.63% and 0.13%, respectively. Moreover, the trailing-12-month ROCE, ROTC, and ROTA of 67.37%, 24.71%, and 22.07% also exceed the respective industry averages of 21.34%, 10.40%, and 8.06%.

Analysts expect PBF’s revenue and EPS for the fiscal third quarter, ending September 30, to increase sequentially by 3.7% and 53.3% to $9.51 billion and $3.51, respectively. The company has also impressed by surpassing consensus EPS estimates in three of the trailing four quarters.

PBF’s forward P/E of 4.82x is 52.8% lower than the industry average of 10.22x. Likewise, its forward EV/Sales and Price/Book multiples of 0.18 and 0.88 are 91.8% and 89.7% lower than the respective industry averages of 2.15 and 1.65.

PBF has gained 2.9% over the past month and 6.1% over the past six months to close the last trading session at $46.18. Currently, the stock is trading above its 50-day and 200-day moving averages of $43.73 and $41.14, respectively.

PBF has an A grade for Value. In addition, the stock has B grades for Momentum and Quality.

PBF is ranked #14 among 87 stocks in the Energy – Oil & Gas industry. Click here to access PBF’s additional POWR Ratings for Growth, Stability, and Sentiment.

MV Oil Trust (MVO)

MVO is a statutory trust that acquires and holds net profits interests in the oil and natural gas properties of MV Partners, LLC, located in the Mid-Continent region in Kansas and Colorado.

On July 25, MVO distributed net profits of $3.74 million or $0.325 per unit for the quarterly payment period ended June 30, 2023.

MVO distributes $1.30 per unit annually. This translates to a yield of 10.60% at the current price. Its dividend payouts have grown at a 20% CAGR over the past five years.

MVO’s trailing 12-month gross profit and net income margins of 100% and 93.03% are significantly higher than the industry averages of 47.34% and 14.13%, respectively. Moreover, its trailing-12-month ROCE, ROTC, and ROTA are 362.50%, 226.56%, and 385.97% below the respective industry averages out of the water.

The stock has gained 5.2% over the past year to close the last trading session at $12.16.

MVO has an A grade for Quality. It also has a B grade for Momentum. It is ranked #18 in the same industry.

Click here for additional POWR Ratings for MVO’s Growth, Value, Stability, and Sentiment. 

What To Do Next?

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MRO shares were trading at $25.65 per share on Friday afternoon, up $0.13 (+0.51%). Year-to-date, MRO has declined -4.11%, versus a 15.62% rise in the benchmark S&P 500 index during the same period.

Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.

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