The energy market is growing rapidly this year, owing to robust oil and gas demand, increasing geopolitical tensions, and improved drilling activity. Therefore, it could be wise to invest in fundamentally strong energy stocks Ultrapar Participações S.A. (UGP), Precision Drilling Corporation (PDS), and Adams Resources & Energy, Inc. (AE) for solid gains in April.
Oil demand is rising, with higher-than-expected 1.7 mb/d levels for the first quarter of 2024. Most recently, the Energy Information Association (EIA) lifted total global consumption forecasts for 2024 by 0.5% to 102.91 million bpd.
Meanwhile, oil prices continue their upward trajectory, fueled by mounting apprehension over a potentially precarious global oil supply landscape. Factors triggering this include Ukrainian drone attacks disrupting Russian refining activity, extended OPEC+ oil production cuts, Red Sea ship incidents, and failed mediation in the Israel-Gaza conflicts.
The EIA expects Brent crude oil prices to average $88.55 a barrel this year, up from its earlier forecast of $87, while U.S. West Texas Intermediate crude prices are now expected to average $83.78 a barrel in 2024.
Moreover, the U.S. onshore and offshore drilling activities are experiencing notable growth owing to improved fleet sizes, increased worldwide usage, and well-balanced oil prices. Therefore, the global drilling services market is expected to reach $17.44 billion by 2027, growing at an 8.6% CAGR.
In light of these encouraging trends, let's look at the fundamentals of the three energy sector stocks.
Ultrapar Participações S.A. (UGP)
Headquartered in São Paulo, Brazil, UGP operates in the energy and infrastructure business. It operates in five segments: Gas distribution (Ultragaz); Fuel distribution (Ipiranga); Chemicals (Oxiteno); Storage (Ultracargo); and Drugstores (Extrafarma).
Its annualized dividend rate of $0.16 per share translates to a dividend yield of 2.80% on the current share price. Its four-year average yield is 2.93%. Over the past three years, UGP’s dividend payments have grown at an 18.5% CAGR.
UGP’s trailing-12-month cash per share of $1.12 is 12.5% higher than the industry average of $1. Similarly, its trailing-12-month asset turnover ratio of 3.38x is 550.7% higher than the industry average of 0.52x.
Over the past three and five years, its revenue grew at CAGRs of 19.4% and 6.8%, respectively, while its tangible book value grew at 13.3% and 9.4% CAGRs over the same periods.
For the fiscal fourth quarter that ended December 31, 2023, UGP’s net revenues from sales and services stood at R$33.42 billion ($6.66 billion), while gross profit increased 25.2% year-over-year to R$3.07 billion ($611.53 million).
For the same quarter, its net income attributable to shareholders of UGP and earnings per share stood at R$1.10 billion ($218.99 million) and R$1, up 33.6% and 33.3% from the prior-year quarter, respectively. Moreover, its adjusted EBITDA stood at R$2.29 billion ($455.77 million), up 24.8% from the year-ago quarter.
Street expects UGP’s revenue for the fiscal year ending December 2024 to increase 2.6% year-over-year to $26.02 billion. The company surpassed consensus revenue estimates in three of the trailing four quarters, which is impressive.
The stock has gained 103.9% over the past year to close the last trading session at $5.75. Over the past six months, it has gained 58%.
UGP’s POWR Ratings reflect its positive prospects. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
UGP has an A grade for Growth and a B for Value and Stability. Within the A-rated Foreign Oil & Gas industry, it is ranked #3 out of 40 stocks.
To see additional POWR Ratings for Momentum, Sentiment, and Quality for UGP, click here.
Precision Drilling Corporation (PDS)
Headquartered in Calgary, Canada, PDS provides onshore drilling, completion, and production services to exploration and production companies in the oil and natural gas and geothermal industries. The company operates in two segments: Contract Drilling Services; and Completion and Production Services.
For the year ended December 31, 2023, PDS achieved its annual debt reduction and return of shareholder capital targets, reducing debt by CAD152 million ($111.96 million) and repurchasing CAD30 million ($22.10 million) of common shares, under its Normal Course Issuer Bid and had 14.34 million shares outstanding.
PDS’ trailing-12-month cash per share of $2.85 is 186.2% higher than the industry average of $1. Similarly, its trailing-12-month asset turnover ratio of 0.66x is 26.8% higher than the industry average of 0.52x.
Over the past three and five years, its revenue grew at CAGRs of 27.5% and 4.7%, respectively, while its EBITDA grew at 30.4% and 10.8% CAGRs over the same periods.
For the fiscal fourth quarter that ended December 31, 2023, PDS’ revenue stood at CAD506.87 million ($373.34 million), while its adjusted EBITDA increased 66% year-over-year to CAD151.23 million ($111.39 million).
For the same quarter, its net earnings and net earnings per share stood at CAD146.72 million ($108.07 million) and CAD9.81, up significantly from the prior-year quarter, respectively. As of December 31, 2023, PDS’ total current assets amounted to CAD510.88 million ($376.30 million), compared to CAD470.67 million ($346.68 million) as of December 31, 2022.
Street expects PDS’ revenue for the fiscal year ending December 2024 to increase 3.2% year-over-year to $1.48 billion. Its EPS is expected to be $7.03 for the same year. The company surpassed consensus revenue and EPS estimates in three of the trailing four quarters.
The stock has gained 49.3% over the past year to close the last trading session at $75.52. Over the past nine months, it has gained 47.9%.
PDS’ POWR Ratings reflect this promising outlook. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
PDS has a B grade for Value, Momentum, and Quality. Within the Energy - Drilling industry, it is ranked first out of 15 stocks.
For PDS’ other ratings (Growth, Stability, and Sentiment), click here.
Adams Resources & Energy, Inc. (AE)
AE markets, transports, terminals’, and stores crude oil and other related products in the U.S. The company operates through four segments: Crude Oil Marketing; Transportation; Pipeline and Storage; and Logistics and Repurposing.
On March 22, AE paid its shareholders a quarterly cash dividend for the fourth quarter of 2023 in the amount of $0.24 per common share. Its annualized dividend rate of $0.96 per share translates to a dividend yield of 3.20% on the current share price.
Its four-year average yield is 3.25%. Over the past five years, AE’s dividend payments have grown at a 1.8% CAGR.
AE’s trailing-12-month cash per share of $13.06 is significantly higher than the industry average of $1. Similarly, its trailing-12-month asset turnover ratio of 7.37x is significantly higher than the industry average of 0.52x.
Over the past three and five years, its revenue grew at CAGRs of 39% and 9.4%, respectively, while its EBITDA grew at 30% and 19.7% CAGRs over the same periods.
For the fiscal fourth quarter that ended December 31, 2023, AE’s total revenues stood at $709.75 million, while its adjusted cash flow increased 99.9% year-over-year to $6.84 million. For the same quarter, its adjusted net earnings and adjusted earnings per common share stood at $90 thousand and $0.03, compared to adjusted net losses and adjusted losses per common share of $2.68 million and $0.85, respectively.
As of December 31, 2023, AE’s total current liabilities amounted to $210.79 million, compared to $231.06 million as of December 31, 2022.
Street expects AE’s revenue for the fiscal first quarter that ended March 2024 to be $561.26 million. The company surpassed consensus revenue estimates in three of the trailing four quarters.
The stock has gained 12.3% year-to-date to close the last trading session at $29.40. Over the past three months, it has gained 20.5%.
AE’s robust prospects are reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
AE has an A grade for Value and a B for Growth, Momentum, and Quality. It is ranked first out of 83 stocks within the Energy - Oil & Gas industry.
Click here for the additional POWR Ratings for AE (Stability and Sentiment).
What To Do Next?
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UGP shares rose $0.08 (+1.39%) in premarket trading Wednesday. Year-to-date, UGP has gained 7.40%, versus a 9.60% rise in the benchmark S&P 500 index during the same period.
About the Author: Neha Panjwani
From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance.
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