Despite global climate action, coal, oil, and gas continue to dominate as global energy demand rises. Geopolitical tensions in Ukraine, Gaza, and U.S.-China relations have heightened the focus on energy security. Hence, this presents an opportunity to consider undervalued energy stocks: Schlumberger Limited (SLB), VAALCO Energy, Inc. (EGY), and Obsidian Energy Ltd. (OBE), offering significant upside potential.
The gradual shift from fossil fuels keeps oil and gas pivotal to the global economy. Expected to grow at a 4.9% CAGR, the market could reach $9.89 trillion by 2029, driven by resource exploration and government support. Moreover, key trends include emission reduction, digital technologies, reservoir modeling, increased drilling investments, and industry alliances for advanced solutions.
Likewise, the Energy-as-a-Service (EaaS) market is projected to grow from $105.91 billion in 2025 to $190.69 billion by 2030, at a 12.5% CAGR. This growth is driven by the increasing adoption of distributed energy solutions in commercial and industrial sectors, regulatory support for energy efficiency, and rising energy demands from a growing population prioritizing sustainable solutions.
Furthermore, oil demand is projected to grow from 840 kb/d in 2024 to 1.10 mb/d in 2025, reaching 103.90 mb/d, while colder winters are expected to boost natural gas consumption. U.S. Henry Hub natural gas prices are forecasted to rise from $2.20/MMBtu in 2024 to $3.00/MMBtu in 2025. With these favorable trends, let’s dive into the fundamentals of the three highlighted energy stocks.
Schlumberger Limited (SLB)
SLB provides technology solutions for the energy industry worldwide. The company operates through four divisions: Digital & Integration, Reservoir Performance, Well Construction, and Production Systems.
On January 8, 2025, SLB announced major drilling contracts with Shell to use AI-enabled digital drilling and ultra-deepwater expertise for energy projects in the UK North Sea, Trinidad and Tobago, and the Gulf of Mexico, aiming to deliver cost-efficient, consistent wells over three years.
On December 12, 2024, SLB announced a contract with Petrobras to deliver two subsea raw seawater injection systems for the Búzios field, aiming to boost recovery efficiency and reduce greenhouse gas emissions while enhancing FPSO performance.
In terms of forward non-GAAP PEG, SLB’s 0.90x is 46% lower than the 1.66x industry average. Its 9.88x forward EV/EBIT is 9.4% lower than the 10.90x industry average. In addition, its 11.49x forward non-GAAP P/E is 6.8% lower than the 12.33x industry average.
For the third quarter ended September 30, 2024, SLB’s revenue grew by 10.2% year-over-year to $9.16 billion. Similarly, its net income attributable to SLB and EPS amounted to $1.19 billion and $0.83, reflecting increases of 5.6% and 6.4%, respectively, from the prior year’s quarter. Furthermore, the company’s adjusted EBITDA rose 12.6% year-over-year to $2.34 billion.
For the quarter ended December 31, 2024, SLB’s EPS and revenue are expected to increase 4.9% and 2.2% year-over-year to $0.90 and $9.19 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. SLB’s stock has declined 5.3% over the past month to close the last trading session at $38.81. The average analyst price target of $59.41 indicates a 53.1% upside potential.
SLB’s POWR Ratings reflect this positive outlook. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the Energy – Services industry, it is ranked #23 out of 53 stocks. To view all the ratings of SLB for Growth, Value, Momentum, Stability, Sentiment, and Quality, click here.
VAALCO Energy, Inc. (EGY)
EGY is an independent energy company that engages in the acquisition, exploration, development, and production of crude oil, natural gas, and natural gas liquids in Gabon, Egypt, Equatorial Guinea, and Canada.
In terms of forward EV/Sales, EGY’s 0.91x is 56.2% lower than the 2.08x industry average. Similarly, its 0.92x forward Price/Sales is 38.1% lower than the 1.48x industry average. Its 5.23x forward non-GAAP P/E is 57.6% lower than the 12.33x industry average.
EGY’s total net revenue for the third quarter, which ended on September 30, 2024, increased by 20.7% year-over-year to $140.33 million. Its operating income rose 24% from the previous year to $44.08 million. Additionally, EGY’s adjusted net income reached $7.93 million, or $0.08 per share, reflecting increases of 6.2% and 14.3%, respectively, from the prior year’s quarter.
Street expects EGY’s revenue for the quarter ending March 31, 2025, to increase 2% year-over-year to $102.11 million. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past year, the stock has declined 4.6% to close the last trading session at $4.34. The average analyst price target of $9.17 indicates a 111.3% upside potential.
EGY’s POWR Ratings reflect its solid fundamentals. It is ranked #20 out of 74 stocks in the Energy – Oil & Gas industry. It has an A grade for Quality and a B for Value. Click here to see the additional grades of EGY for Growth, Momentum, Stability, and Sentiment.
Obsidian Energy Ltd. (OBE)
Headquartered in Calgary, Canada, OBE engages in the exploration, production, and development of oil and natural gas properties in Western Canada.
In terms of forward EV/EBITDA, OBE’s 2.05x is 67.1% lower than the 6.25x industry average. Its 0.77x forward Price/Sales is 47.9% lower than the 1.48x industry average. Likewise, its 5.97x forward non-GAAP P/E is 51.6% lower than the 12.33x industry average.
In the third quarter ending September 30, 2024, OBE’s funds flow from operations increased 26.1% year-over-year to C$124.70 million ($86.66 million). Moreover, the company’s net income was C$33.20 million ($23.07 million), or $0.42 per share, reflecting growth of 33.9% and 40% from the previous year’s quarter, respectively.
Analysts expect OBE’s revenue for fiscal 2024 to increase 6.9% year-over-year to $571.42 million. Its EPS for fiscal 2025 is expected to rise 17.5% year-over-year to $4.59. Over the past month, the stock has gained 11.3% to close the last trading session at $5.90. The average analyst price target of $9.14 indicates a 54.9% upside potential.
OBE’s POWR Ratings reflect its bright prospects. It has an overall rating of B, translating to a Buy in our proprietary rating system.
It has a B grade for Value. Within the Energy – Oil & Gas industry, OBE is ranked #6. To access OBE’s additional grades for Growth, Momentum, Stability, Sentiment, and Quality, click here.
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SLB shares were trading at $38.74 per share on Friday afternoon, down $0.07 (-0.18%). Year-to-date, SLB has gained 1.04%, versus a -1.03% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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