Amid the ongoing geopolitical upheavals, robust oil demand, upbeat industry forecasts, and OPEC+ production cuts, a surge in crude prices could be witnessed. Moreover, the intensified demand spurs exploration and production companies to discover fresh oil reserves.
This scenario could stimulate investors’ interest in the sector, specifically targeting companies best positioned to yield significant profits. Therefore, fundamentally strong energy stocks Newpark Resources, Inc. (NR), Permianville Royalty Trust (PVL), and Superior Drilling Products, Inc. (SDPI) could be solid portfolio additions now.
Despite heightened geopolitical tensions and a global shift toward alternative energy sources, the demand for oil and gas has demonstrated noteworthy fortitude. For the week ending November 29, 2023, total U.S. natural gas consumption rose by 21% compared with the prior week's report. Residential and commercial sector consumption increased by 50.8% and is poised for further elevation as the nation braces for chillier weather.
The International Energy Agency (IEA) projects oil demand in 2023 to reach 2.4 million barrels per day (bpd) and 930,000 bpd for 2024, while OPEC foresees oil demand soaring by 2.5 million bpd in 2023, potentially expanding by 2.25 million bpd by 2024.
Industry services like drilling, completion, production, and well interventions – indispensable for meeting the increased demand – offer lucrative opportunities for distinguished energy enterprises.
The optimism is echoed in rising drilling activities, as evidenced by an increased rig count posting gains for two successive weeks. The global oilfield services market is expected to reach $512.61 billion by 2029, growing at a CAGR of 6.7%.
The ongoing Russia-Ukraine and Israel-Hamas conflicts and Saudi Arabia and Russia’s fresh production cuts could sustain high oil prices and create a conducive climate for oil exploration and production activities.
The U.S. Energy Information Administration projects that Brent crude oil prices could ascend to an average of $90 per barrel in the fourth quarter of 2023 and an average of $93 per barrel in 2024.
With these favorable trends in mind, let's delve into the fundamentals of the three energy stock picks, beginning with the third choice.
Newpark Resources, Inc. (NR)
NR offers products, rentals, and services to the oil and natural gas exploration and production industry. Its Fluids Systems division provides drilling and completion fluids and technical services, while the Industrial Solutions segment offers composite matting system rentals for temporary worksite access and related construction services.
NR used $6 million to repurchase 1 million shares of common equity during the third quarter, bringing its year-to-date repurchases to $26 million (5.6 million shares) under its share repurchase program. As of September 30, 2023, the company had $24 million remaining under its existing repurchase authorization.
NR’s trailing-12-month levered FCF margin of 13.86% is 138.5% higher than the industry average of 5.81%. Its trailing-12-month asset turnover ratio of 1.13x is 106.4% higher than the industry average of 0.55x.
For the fiscal third quarter that ended September 30, 2023, NR’s revenues stood at $198.50 million. Its operating income came at $13.25 million, compared to an operating loss of $21.31 million in the prior year quarter. Its adjusted EBITDA rose 13.5% from the year-ago value to $22.26 million.
In addition, the company’s adjusted net income and adjusted net income per common share grew 59.5% and 50% year-over-year to $8.35 million and $0.09, respectively. As of September 30, 2023, its net debt was reduced to $59.10 million, bringing the net leverage ratio to 0.7x at the end of the third quarter.
Street expects NR’s EPS for the fiscal year ending December 2023 to increase 161.5% year-over-year to $0.34, while revenue is expected to be $753.20 million. The company surpassed consensus EPS estimates in three of the trailing four quarters, which is impressive.
Over the past year, the stock has surged 76.4%, closing the last trading session at $6.95. It has gained 81.9% over the past six months.
NR’s POWR Ratings reflect its positive prospects. The stock has an overall B rating, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
It has an A grade for Sentiment and a B for Momentum. It is ranked #10 out of 49 stocks within the Energy - Services industry.
Click here to access NR’s additional ratings for Growth, Value, Stability, and Quality.
Permianville Royalty Trust (PVL)
PVL operates as a statutory trust. It acquires and holds net profits interest, representing the right to receive 80% of the net profits from the sale of oil and natural gas production from properties in Texas, Louisiana, and New Mexico.
On November 22, PVL paid a special cash distribution to the holders of its units of beneficial interest of $0.077250 per unit. On November 13, it paid the shareholders a monthly cash distribution of $0.06 per unit.
Its annualized dividend rate of $0.33 per share translates to a dividend yield of 16.83% on the current share price. Its four-year average yield is 14.05%. Its dividend payments have grown at a CAGR of 26.5% over the past three years.
PVL’s trailing-12-month gross profit and EBIT margins of 100% and 93.51% are 111.3% and 299.1% higher than the industry averages of 47.32% and 23.43%, respectively. Likewise, its trailing 12-month ROCE, ROTC, and ROTA of 23.36%, 14.99%, and 24.28% are 17.2%, 61.2%, and 229.9% higher than the industry averages of 19.94%, 9.30%, and 7.36%, respectively.
In the fiscal quarter that ended September 30, 2023, PVL’s total gross profits stood at $13.99 million, while its net profits came at $3.56 million. Its distributable income stood at $2.48 million. As of September 30, 2023, its cash and cash equivalents stood at $1.33 million compared to $922.91 thousand as of December 31, 2022.
The stock has gained 2.1% intraday to close its last trading session at $1.99. Over the past month, it gained 5.9%.
PVL’s strong fundamentals are reflected in its POWR Ratings system. It has an overall B rating, equating to Buy in our proprietary rating system.
PVL has a B grade for Momentum, Sentiment, and Quality. PVL ranks #13 within the 85-stock Energy - Oil & Gas industry.
To see PVL’s additional POWR Ratings for Growth, Value, and Stability, click here.
Superior Drilling Products, Inc. (SDPI)
As a drilling and completion tool technology company, SDPI designs, engineers, manufactures, sells, rents, and repairs drilling and completion tools in North America and internationally.
SDPI’s trailing-12-month levered FCF margin of 13.82% is 137.8% higher than the industry average of 5.81%. Its trailing-12-month asset turnover ratio of 1.07x is 96% higher than the industry average of 0.55x.
In the fiscal third quarter that ended September 30, 2023, SDPI’s total revenue stood at $5.05 million, while operating income came at $126.02 thousand. Its adjusted EBITDA came at $784.32 thousand.
The company’s net income for the quarter came at $13.84 thousand. For the nine months that ended September 30, 2023, net cash provided by operating activities increased 213% year-over-year to $4.18 million. As of September 30, 2023, its total current assets stood at $10.81 million, compared to $8.20 million as of December 31, 2022.
For the fiscal year 2023, SDPI expects its revenue to be between $22 million and $24 million, while adjusted EBITDA is expected to be between $5.5 million and $6.5 million.
Street expects SDPI’s revenue and EPS for the fiscal year ending December 2023 to increase 16.5% and 100% year-over-year to $22.25 million and $0.08, respectively.
SDPI’s stock has gained 5.9% intraday to close the last trading session at $0.72. Over the past five days, it gained 6%.
SDPI’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.
SDPI has an A grade for Momentum and Sentiment and a B for Value and Quality. It is ranked #2 of 16 stocks in the Energy – Drilling industry.
Beyond what we have highlighted above, to access additional SDPI ratings for Growth and Stability, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
NR shares . Year-to-date, NR has gained 67.47%, versus a 20.67% 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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