Russia’s invasion of Ukraine roiled the energy markets and drove oil and gas prices to their highest levels in nearly a decade, as several countries imposed import bans on Russian fossil fuels. On Tuesday, Brent crude futures settled 2.6% higher at $104.99 per barrel, and U.S. West Texas Intermediate contracts settled the day at $101.70 per barrel by rising 3.2%.
In addition, Russian energy giant Gazprom cut gas supplies to Poland and Bulgaria. Furthermore, China has imposed a continuous lockdown to combat the rising COVID-19 cases. The Chinese central bank has stated that it will boost its monetary policy support, which might increase oil demand. And the U.S. dollar has hit a more than two-year high of late, thus putting pressure on commodities and making oil expensive for other currency holders.
Given the rising oil prices, energy stocks W&T Offshore, Inc. (WTI) and VAALCO Energy, Inc. (EGY), which look undervalued at their current price levels, could be solid additions to one’s investment portfolio. Wall Street analysts expect these stocks to deliver solid upside in the coming months.
W&T Offshore, Inc. (WTI)
WTI in Houston, Tex., is an independent oil and natural gas producer that acquires, explores for, and develops oil and natural gas properties in the Gulf of Mexico. The company sells crude oil, natural gas liquids, and natural gas.
On February 2, 2022, WTI announced its acquisition of oil and gas-producing properties in federal shallow waters in the Gulf of Mexico. This acquisition is complementary to the company’s existing asset base and is expected to provide a solid base of proved reserves and free cash flow to WTI and enhance its shareholder return.
In terms of its forward EV/Sales, WTI is currently trading at 1.55x, which was 19.11% lower than the 1.91x industry average. Its 3.55 forward EV/EBIT multiple is 64.4% lower than the 9.97 industry average.
For its fiscal fourth quarter, ended Dec. 31, 2021, WTI’s total revenue increased 74.8% year-over-year to $165.59 million. Its operating income increased 475% from its year-ago value to $68.30 million, while its net income stood at $48.90 million, reflecting a 646.6% increase year-over-year. Its EPS increased 666.7% from the prior year period to $0.34.
The Street expects WTI’s EPS for its fiscal quarter ended March 31, 2022, to improve 81.8% year-over-year to $0.20. The $159 million consensus revenue estimate for the same period represents a 26.6% increase year-over-year. The company also surpassed the consensus EPS estimates in three of the trailing four quarters.
The stock has gained 47.6% in price over the past year to close yesterday’s trading session at $4.68. It has gained 44.9% year-to-date. The 12-month median price target of $7.85 indicates a 67.7% potential upside.
WTI’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which translates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
WTI has an A grade in Momentum and a B in Growth, Value, Sentiment, and Quality. It is ranked #3 of 97 stocks in the B-rated Energy - Oil & Gas industry.
Beyond what is stated above, we have also rated WTI for Stability. Get all the WTI ratings here.
VAALCO Energy, Inc. (EGY)
EGY in Houston, Tex., is an independent energy company that acquires, explores for, develops, and produces crude oil and natural gas. The company holds a production sharing contract related to the Etame Marin block located offshore in the Republic of Gabon and owns interests in an undeveloped block in offshore Equatorial Guinea.
On April 26, EGY announced the completion of the drilling of the Avouma 3H-ST development wells in the Etame field offshore Gabon. This new extension reservoir has strong initial flow rates, which exceeded the company’s internal expectations. This should be operationally beneficial for EGY and might aid the company in enhancing its cash flow position and shareholder returns.
Earlier in March, the company contracted with DOF Subsea to perform construction and installation services for subsea reconfiguration and to replace the existing Floating Production, Storage, and Offloading unit (FPSO) with a Floating Storage and Offloading vessel (FSO) that is expected to increase effective storage capacity and reduce costs by almost 50%. This project should significantly improve EGY’s margins, enhance cash flow generation and sustain its operational and financial performance.
In terms of its forward EV/Sales, EGY is currently trading at 1.24x, which is 35% lower than the 1.91x industry average. Its 1.37 forward Price/Sales multiple is 1.9% lower than the 1.40 industry average.
EGY’s revenues increased 349% year-over-year to $56.38 million in its fiscal fourth quarter, ended Dec. 31, 2021. Its operating income grew 702.4% from its year-ago value to $25.85 million. The company’s net income increased 1,055.8% year-over-year to $34.36 million. Also, its net income per share was $0.58, up 1,066.7% from the prior-year quarter.
The consensus EPS estimate of $0.30 for the fiscal first quarter, ended March 31, 2022, represents a 76.5% year-over-year improvement. The consensus revenue estimate of $55.31 million for the same quarter represents a 39.1% increase from last year's same period.
The stock has gained 168% in price over the past year and 103.7% year-to-date to close yesterday’s trading session at $6.54. The 12-month median price target of $8.42 indicates a 28.7% potential upside.
It is no surprise that EGY has an overall rating of B, equating to Buy in our POWR Ratings system. The stock has an A grade in Momentum and Sentiment and a B in Growth, Value, and Quality. It is ranked #7 in the Energy - Oil & Gas industry.
In addition to the POWR Rating grades I have just highlighted, you can see the EGY’s ratings for Stability here.
Want More Great Investing Ideas?
WTI shares were trading at $4.77 per share on Wednesday afternoon, up $0.09 (+1.92%). Year-to-date, WTI has gained 47.68%, versus a -11.13% rise in the benchmark S&P 500 index during the same period.
About the Author: Komal Bhattar
Komal's passion for the stock market and financial analysis led her to pursue investment research as a career. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
The post 2 Undervalued Energy Stocks with Much More Upside appeared first on StockNews.com