Pioneer Natural Resources Company (PXD) and Suncor Energy Inc. (SU) are slated to disclose their fiscal fourth-quarter earnings (ended December 2023) on February 22 and February 21, respectively. Wall Street foresees PXD experiencing a 1.9% year-over-year decrease in fourth-quarter revenue, falling to $5.01 billion. Similarly, its EPS for the same period is expected to decline by 8.8% year-over-year to $5.39.
Likewise, SU is anticipated to see a significant drop in its fourth-quarter revenue, plunging by 8.7% year-over-year to $9.48 billion, with its EPS forecasted to decline by 41.6% year-over-year to $0.79. Given the subdued analyst estimates for the fourth quarter, this article discusses the rationale behind waiting for a more opportune entry point in both PXD and SU.
But before we dive deeper into the fundamentals of these stocks for better insight, let’s first briefly examine the industry dynamics.
Last week, OPEC reaffirmed its forecast for strong growth in global oil demand for 2024 and 2025 and revised its economic growth projections for both years upwards, highlighting additional potential for growth. According to the organization, an additional momentum in economic growth could provide further support to oil demand.
The monthly report from OPEC indicates that world oil demand is projected to rise by 2.25 million barrels per day (bpd) in 2024 and by 1.85 million bpd in 2025, consistent with the previous month's forecasts. Additionally, the organization now anticipates global economic growth to reach 2.7% this year and 2.9% in 2025, driven by expected inflation easing.
Contrary to OPEC's perspective, the International Energy Agency (IEA) last week adjusted its forecast for global oil demand growth in 2024 downwards. IEA now predicts a growth of 1.22 million bpd for this year, marking a slight decrease from last month's estimate of 1.24 million bpd.
Despite the conflicting views on global oil demand growth, according to Manish Raj, managing director at Velandera Energy Partners, the market tends to lean toward trusting OPEC more. This preference is attributed to OPEC's direct engagement in oil production and trading, which offers more comprehensive market insights.
Meanwhile, oil prices remain resilient, hovering near three-week peaks. Heightened tensions in the Middle East contribute to market unease, while strong from China serves as a key driver, maintaining upward pressure on prices.
Keeping all these factors in mind, let’s now explore the fundamentals of the featured Energy - Oil & Gas stocks, beginning with number two.
Stock #2: Pioneer Natural Resources Company (PXD)
PXD operates as an independent oil and gas exploration and production company in the United States. The company explores, develops, and produces oil, natural gas liquids (NGLs), and gas.
On December 22, 2023, PXD paid its shareholders a quarterly dividend of $3.20 per share. The company’s annual dividend of $5 translates to a 2.16% yield on the prevailing price level, while its four-year average dividend yield is 5.62%. Its dividend payouts have grown at CAGRs of 32.4% and 72.2% over the past three and five years, respectively.
PXD’s trailing-12-month levered FCF and net income margins of 11.96% and 26.22% are 114.4% and 102.6% higher than the industry averages of 5.58% and 12.95%, respectively.
On the other hand, the stock’s trailing-12-month asset turnover ratio and cash per share of 0.54x and $0.42 are 1.6% and 55.2% lower than the 0.55x and $0.94 industry averages, respectively.
In the fiscal third quarter, which ended on September 30, 2023, PXD’s revenues and other income declined 17.9% year-over-year to $5 billion. Its attributable net income came in at $1.30 billion and $5.41 per share, down 34.4% and 31.8% from the prior-year quarter, respectively.
However, during the same quarter, the company’s total current liabilities stood at $3.38 billion, declining 15.5% compared to $3.89 billion as of December 31, 2022.
The consensus revenue estimate of $19.16 billion for the fiscal year ended December 2023 represents a 21.1% year-over-year decline. The consensus EPS estimate of $20.88 for the same period reflects a 31.7% year-over-year plunge. Meanwhile, the company topped its EPS estimates in each of the trailing four quarters, which is impressive.
PXD’s shares plummeted marginally over the past six months but gained 6.2% over the past month to close the last trading session at $231.57.
PXD’s POWR Ratings are consistent with this uncertain outlook. The stock has an overall C rating, translating to Neutral in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a C grade for Momentum, Stability, and Quality. In the 88-stock Energy - Oil & Gas industry, it is ranked #68. Click here to see PXD’s ratings for Growth, Value, and Sentiment.
Stock #1: Suncor Energy Inc. (SU)
Headquartered in Calgary, Canada, SU operates as an integrated energy company internationally. It operates through Oil Sands; Exploration and Production; and Refining and Marketing segments.
On December 22, 2023, SU paid its shareholders a quarterly dividend of C$0.55 per share, reflecting a 5% rise over the previous quarterly dividend. The company’s annual dividend translates to a 4.86% yield on the prevailing price level, while its four-year average dividend yield is 4.62%. Its dividend payouts have grown at CAGRs of 23.4% and 7.1% over the past three and five years, respectively.
On November 27, 2023, SU announced the successful restart of the Terra Nova Floating, Production, Storage, and Offloading vessel after the completion of the Terra Nova Asset Life Extension project.
Rich Kruger, SU’s President and Chief Executive Officer, noted that this development would not only generate additional cash flow for shareholders but also contribute significantly to the economies of Newfoundland, Labrador, and Canada.
SU’s trailing-12-month levered FCF margin of 18.90% is 238.7% higher than the industry average of 5.58%. Likewise, its trailing-12-month gross profit margin of 61.19% is 33.7% higher than the 45.77% industry average. Meanwhile, the stock’s 11.41% trailing-12-month CAPEX/Sales is 17.7% lower than the 13.87% industry average.
For the fiscal third quarter, which ended on September 30, 2023, SU’s revenue and other income declined 16.1% year-over-year to C$12.64 billion ($9.37 billion). On the other hand, during the same quarter, the company reported net earnings of C$1.54 billion ($1.14 billion) and C$1.19 per share versus a net loss of C$609 million ($451.67 million) and C$0.45 per share in the year-ago quarter.
Street expects SU’s revenue and EPS for the fiscal year ended December 2023 to plunge 16.3% and 36.9% year-over-year to $36.70 billion and $3.93, respectively. However, the company has an excellent earnings surprise history, surpassing its EPS estimates in each of the trailing four quarters.
The stock has surged 17.5% over the past nine months to close the last trading session at $33.07.
SU’s mixed fundamentals are reflected in its POWR Ratings. It has an overall rating of C, which equates to Neutral in our proprietary rating system.
It has a C grade for Growth, Value, and Stability. Within the same industry, it is ranked #25. Click here to see the other ratings of SU for Momentum, Sentiment, and Quality.
What To Do Next?
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PXD shares were trading at $230.50 per share on Tuesday morning, down $1.07 (-0.46%). Year-to-date, PXD has gained 2.50%, versus a 4.54% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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