The potential for continued conflict and geopolitical instability in the Middle East, including incidents such as missile interceptions and tensions in the region, could push oil prices upward.
Consequently, it could be prudent to invest in robust energy stocks Weatherford International plc (WFRD), Valero Energy Corporation (VLO), and Cheniere Energy, Inc. (LNG), which stand poised to leverage the impending surge in oil prices. Let's understand this in detail.
In the Red Sea, a U.S. Navy warship has actively intercepted three missiles originating from Yemen. This incident hints at a potential targeting of Israel. These developments signal a deepening Middle East conflict, coinciding with reports of Israel fortifying its border with Lebanon, the stronghold of Hezbollah.
Additionally, the AP reported another strike in Iraq, specifically aimed at U.S. and coalition partner forces near Baghdad International Airport. This development undoubtedly heightens concerns regarding an intensification of Middle East tensions, evident in the surge of oil prices in response to the news.
Brent, the global benchmark, has surpassed $93 per barrel, while West Texas Intermediate has approached $91. Earlier in the week, oil prices had receded due to the United States’ decision to revoke sanctions on Venezuelan oil. However, this recent military escalation seems to have offset that development.
This broadened unrest could push oil prices above the $100 per barrel mark. After a brutal explosion at a Gaza hospital, raising the stakes of the conflict, ActivTrades analyst Ricardo Evangelista said, "This scenario would almost certainly affect the global oil supply and could drive the price of the barrel to levels above the $100 mark."
In light of these trends, let’s look at the fundamentals of the three Energy - Oil & Gas stocks, beginning with number 3.
Stock #3: Weatherford International plc (WFRD)
WFRD offers comprehensive equipment and services, encompassing drilling, evaluation, completion, production, and intervention for oil, geothermal, and natural gas wells. The company operates through three segments: Drilling and Evaluation; Well Construction and Completions; and Production and Intervention.
In its fiscal second quarter update, WFRD exceeded expectations, driven by the strength of its international operations and strategic focus. As a result, the company has revised its full-year 2023 adjusted EBITDA margins guidance upward, projecting mid to high teens revenue growth and a year-over-year expansion of over 350 basis points.
Additionally, WFRD anticipates that adjusted free cash flow for the year would surpass $400 million. These adjustments underline the company's sound financial health, facilitating further growth and investment opportunities.
For the second quarter that ended June 30, 2023, WFRD’s total revenues increased 19.7% year-over-year to $1.27 billion. Its adjusted EBITDA grew 56.5% from the year-ago value to $291 million. Also, the company’s net income rose 650% from the prior year’s period to $90 million, while adjusted free cash flow stood at $172 million, up 191.5% year-over-year.
The consensus revenue estimate of $5.07 billion for the fiscal year ending December 2023 reflects a 17.2% year-over-year improvement. Likewise, the consensus EPS estimate of $4.65 reflects a significant rise from the prior year. WFRD’s shares have gained 175.7% over the past year to close the last trading session at $94.00.
WFRD’s positive fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
WFRD has an A grade for Growth and Momentum and a B for Quality. It has ranked #9 out of 88 stocks within the Energy - Oil & Gas industry.
In addition to the POWR Ratings I’ve just highlighted, you can see WFRD’s ratings for Value, Sentiment, and Stability here.
Stock #2: Valero Energy Corporation (VLO)
VLO produces, markets, and sells transportation fuels and petrochemical products. The company's segments include Refining; Renewable Diesel; and Ethanol. Its product portfolio includes a range of fuels like gasoline, diesel, jet fuel, and asphalt, as well as petrochemicals such as aromatics and sulfur crude oils.
VLO's second-quarter report underscores the successful operation of its Port Arthur Coker project, which has been operational since April. Enhanced capacity utilization and seamless functioning enable the efficient processing of heavy crudes and residual feedstocks, optimizing turnaround efficiency and fortifying growth potential in handling heavier crudes.
Furthermore, the Sustainable Aviation Fuel (SAF) project at the DGD Port Arthur plant is poised to be a game-changer. It is expected to empower the plant to shift 50% of its 470-million-gallon annual renewable diesel capacity into SAF production, establishing VLO as a prominent SAF manufacturer.
For the fiscal second quarter that ended on June 30, 2023, VLO’s revenues amounted to $34.51 billion, while its operating income came in at $2.76 billion. During the same quarter, net income attributable to VLO and earnings per common share stood at $1.94 billion and $5.40, respectively.
In addition, as of June 30, 2023, the company’s cash and cash equivalents included in current assets amounted to $5.08 billion, compared to $4.86 billion as of December 31, 2022.
The consensus EPS estimate of $7.32 for the fiscal third quarter that ended September 2023 reflects a 2.3% year-over-year improvement. Also, the company topped the consensus EPS estimates in all four trailing quarters. Over the past five days, VLO has gained 3.2%, closing the last trading session at $132.42.
VLO’s solid outlook is apparent in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
VLO has a B grade for Momentum, Value, and Quality. It has ranked #8 out of 88 stocks within the same industry.
Click here to access additional VLO ratings for Growth, Sentiment, and Stability.
Stock #1: Cheniere Energy, Inc. (LNG)
LNG is involved in various Liquefied Natural Gas (LNG) related activities. It possesses and manages the Sabine Pass LNG terminal in Cameron Parish, Louisiana, as well as the Corpus Christi LNG terminal in proximity to Corpus Christi, Texas. Additionally, LNG and natural gas marketing form a significant part of the company’s business endeavors.
LNG's fiscal second quarter showcased remarkable financial, commercial, and operational performance. Successful maintenance at Sabine Pass, notable progress in growth projects, and significant commercial strides reaffirm its leading position in the LNG market, emphasizing its continued role in the global energy landscape.
Also, the company has revised its fiscal 2023 guidance upwards. The new range for consolidated adjusted EBITDA is $8.3 billion to $8.8 billion, an increase from the previous $8.2 billion to $8.7 billion. Similarly, the expected distributable cash flow now falls between $5.8 billion to $6.3 billion, up from the previous estimate of $5.7 billion to $6.2 billion.
LNG’s other revenues for the second quarter that ended June 30, 2023, increased 127.3% year-over-year to $150 million. Its income from operations rose 56.3% from the year-ago value to $2.31 billion.
In addition, net income and net income per share attributable to common stockholders rose 84.8% and 93.4% from the prior year’s period to $1.37 billion and $5.61, respectively.
Analysts expect LNG’s EPS to grow 492.7% year-over-year to $33.43 for the fiscal year ending December 2023. Moreover, the company surpassed the consensus EPS estimates in three of the four trailing quarters. The stock has gained 16.4% over the past six months, closing the last trading session at $175.54.
LNG’s strong prospects 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.
LNG has a B grade for Value, Momentum, Quality, and Sentiment. It has topped the 88-stock Energy - Oil & Gas industry.
Click here to access the additional LNG ratings (Growth and Stability).
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.
VLO shares were trading at $132.51 per share on Friday morning, up $0.09 (+0.07%). Year-to-date, VLO has gained 7.04%, versus a 11.94% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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