The energy sector is well-positioned to witness a positive growth trajectory amid soaring demand for oil and gas on the backs of China’s reopening. Moreover, surprise production cuts by OPEC+ could propel the prices up.
Against this backdrop, let us explore some energy stocks NexTier Oilfield Solutions Inc. (NEX), NOW Inc. (DNOW), and NCS Multistage Holdings, Inc. (NCSM), which could be solid buys now for the reasons mentioned in the article.
Amid geopolitical turmoil, soaring commodity prices, and rising interest rates, the energy sector thrived comparatively well than the others. Despite fears of recession hovering, the sector is anticipated to perform well owing to robust oil and gas demand and supply constraints.
To begin with, amid a solid rebound in the Chinese economy in the first quarter, the surging demand for oil and gas has further escalated optimism. OPEC has recently raised the oil demand forecast by 760,000 bpd year-over-year to 15.61 million bpd this year.
In the second quarter of 2023, Chinese oil demand is expected to see annual growth of 1.0 million bpd, while growth in the third quarter is also pegged at a solid 800,000 bpd year-on-year.
According to OPEC, the surge is attributed to the increased travel that would boost demand for transportation fuels, soaring construction projects, and a vibrant petrochemical sector.
In addition, the recent oil production cuts by OPEC+ could trigger a supply deficit later this year. This is anticipated to push the prices up. Goldman Sachs revised its oil price forecast from $90 at the end of the year for Brent crude to $95. Also, Brent crude is projected to grow to $100 in 2024 from an earlier projection of $97.
Moreover, OPEC’s surprise oil production cuts could lead to higher demand for U.S. oil in Europe and Asia and encourage some producers to boost output.
Considering this backdrop, fundamentally strong energy stocks NEX, DNOW, and NCSM could be wise portfolio additions now to capitalize on the current oil market dynamics.
NexTier Oilfield Solutions Inc. (NEX)
NEX provides diverse oil completion and production services across various land oilfield basins across the United States. The company operates through two segments: Completion Services; and Well Construction and Intervention Services.
In terms of forward non-GAAP P/E, NEX is trading at 3.26x, 62.3% lower than the industry average of 8.64x. Its forward EV/EBITDA multiple of 2.23 is 57.2% lower than the industry average of 5.21.
NEX’s trailing-12-month asset turnover ratio of 2.04x is 202% higher than the 0.67x industry average. Its trailing 12-month ROCE, ROTC, and ROTA of 47.12%, 21.52%, and 18.24% are 119.7%, 124.3%, and 157.2% higher than the industry averages of 21.44%, 9.60%, and 7.09%.
For the fiscal year that ended December 31, 2022, NEX’s revenue increased 128% year-over-year to $3.24 billion, while its adjusted EBITDA came in at $656.83 million, compared to $113.96 million during the previous fiscal year.
The company’s adjusted net income for the fiscal year came in at $394.63 million, or $1.58 per share, compared to a loss of $96.50 million or $0.43 per share during the previous fiscal year.
Analysts expect NEX’s revenue and EPS for the current fiscal year (ending December 2023) to increase 19.9% and 59.6% year-over-year to $3.89 billion and $2.52, respectively. It surpassed consensus EPS estimates in each of the trailing four quarters.
The stock has increased 17.4% over the past month and 5.3% over the past five days to close the last trading session at $8.57.
NEX’s POWR Ratings reflect this positive outlook. NEX has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It also has an A grade for Growth and Momentum and a B for Value and Quality. NEX is ranked #7 of 43 stocks in the B-rated Energy – Services industry.
Click here for additional ratings for NEX (Stability and Sentiment).
NOW Inc. (DNOW)
DNOW distributes downstream energy and industrial products for petroleum refining, chemical processing, LNG terminals, power generation utilities, and industrial manufacturing operations in the United States, Canada, and internationally. It offers its products under the DistributionNOW and DNOW brand names.
In terms of forward non-GAAP P/E, DNOW is trading at 10.39x, 37.4% lower than the industry average of 16.59x. Its forward EV/EBITDA multiple of 5.58 is 47.2% lower than the industry average of 10.56.
DNOW’s trailing-12-month asset turnover ratio of 1.76x is 119.9% higher than the 0.80x industry average, while its trailing 12-month ROTA of 9.70% is 87.2% higher than the industry average of 5.18%.
For the fiscal fourth quarter that ended December 31, 2022, DNOW’s revenue increased 26.6% year-over-year to $547 million, while its operating profit came in at $35 million, compared to $7 million during the year-ago quarter. Its adjusted EBITDA came in at $47 million, compared to $17 million for the prior-year quarter that ended December 31, 2021.
Adjusted net income attributable to DNOW and adjusted net income per share for the same fiscal quarter came in at $29 million and $0.25 per share, which rose 262.5% and 257.1% year-over-year, respectively.
Analysts expect DNOW’s revenue and EPS for the fiscal second quarter ending June 2023 to increase 7.5% and 10.6% year-over-year to $579.35 million and $0.29, respectively. It surpassed consensus EPS and revenue estimates in each of the trailing four quarters, which is impressive.
The stock has increased 3.5% over the past month and 2.9% over the past five days to close the last trading session at $10.96.
DNOW’s strong fundamentals are reflected in the POWR Ratings. It has an overall rating of B, which translates to Buy in our proprietary rating system.
It also has a B grade for Value, Momentum, and Sentiment. DNOW is ranked #6 in the same industry.
Click here for additional ratings for DNOW’s Growth, Stability, and Quality.
NCS Multistage Holdings, Inc. (NCSM)
NCSM provides engineered products and support services for oil and natural gas well completions and field development strategies internationally. It offers fracturing systems, enhanced recovery products, repeat precision products, chemical and radioactive tracer diagnostics services, and well construction products.
In terms of trailing-12-month EV/Sales, NCSM is trading at 0.44x, 73.3% lower than the industry average of 1.64x. Its trailing-12-month Price/Sales multiple of 0.34 is 73.5% lower than the industry average of 1.15x.
NCSM’s trailing-12-month asset turnover ratio of 1.11x is 64.2% higher than the 0.67x industry average.
For the fiscal fourth quarter that ended December 31, 2022, NCSM’s total revenues increased 11.3% year-over-year to $40.19 million, while its income from operations came in at $1.81 million, compared to $1.28 million during the previous-year quarter. Its adjusted EBITDA came in at $6.40 million.
The company’s adjusted net income attributable to NCSM and adjusted net income per share for the same quarter came in at $1.57 million and $0.64 per share, rising 31.9% and 33.3% year-over-year, respectively.
The stock has increased 1.3% over the past month to close the last trading session at $21.62.
NCSM’s POWR Ratings reflect its robust prospects. It has an overall rating of B, which translates to Buy in our proprietary rating system.
It also has an A grade for Momentum and a B for Value, Sentiment, and Quality. NCSM is ranked #5 within the same industry.
To see the additional ratings for NCSM’s Growth and Stability, click here.
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NEX shares were trading at $8.09 per share on Tuesday morning, down $0.48 (-5.60%). Year-to-date, NEX has declined -12.45%, versus a 7.69% 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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