With a steady growth in energy consumption, an increasing demand for energy services could catalyze the industry’s growth. Therefore, it could be worth investing in quality energy services stocks Liberty Energy Inc. (LBRT), Gibson Energy Inc. (GBNXF), and REX American Resources Corporation (REX) now.
Let’s first briefly familiarize ourselves with the energy services sector before delving into the fundamentals of the stocks.
OPEC’s forecast suggests the global oil demand to rise by 2.4 million barrels per day (bpd), reaching 102.1 million bpd this year, driven by advancement in the Chinese economy. A further increase of 2.2 million bpd next year is also projected.
The U.S. Energy Information Administration (EIA) data highlights a remarkable achievement for U.S. natural gas exports. In the first half of 2023, it exported more natural gas, surpassing the prior-year period figures. This buoyant export rhythm is propelled mainly by liquefied natural gas (LNG) and natural gas pipeline exports.
The current and anticipated demand surge has led exploration and production companies to search for new sources. Services such as drilling, completion, production, and well intervention, pivotal to meeting these demands, present lucrative avenues for major energy companies.
Historic returns from upstream oil and gas projects have been around 15% to 20%, proving lucrative for enterprises. Anticipating robust long-term demand, oil and gas corporations are redoubling their exploitation endeavors, reinvesting a portion of unprecedented profits.
In addition to the escalating oil demand, supply constraints due to the Israel-Hamas war and OPEC+ and Russia’s prolonged production cuts could sustain elevated oil prices, creating a favorable environment for oil exploration and production activities. Recent reports from oilfield service giant Baker Hughes indicate a rise in North American drilling activity, boosted specifically by Texas. The total rig count augments by three units to 622 for the week ending October 13, 2023.
Wood Mackenzie anticipates that oil and gas exploration expenditure could average $22 billion annually over the next five years. Attractive economic conditions, increased energy security emphasis, and the discovery of new resources will motivate national oil companies (NOCs) and energy majors to intensify their exploration activities.
Furthermore, the global oilfield services market is projected to reach $421.31 billion by 2030, growing at a CAGR of 5.6%. Also, SPDR S&P Oil & Gas Exploration & Production ETF (XOP) has gained 11.6% over the past six months, substantiating investors’ interest.
Considering these conducive trends, let's take a look at the fundamentals of the three promising Energy – Services stocks, starting with number 3.
Stock #3: Liberty Energy Inc. (LBRT)
LBRT offers hydraulic services and related technologies to onshore oil and natural gas exploration and production companies in North America. The company provides hydraulic fracturing and complementary services like wireline services, proppant delivery solutions, data analytics, related goods, and technologies.
On September 20, LBRT paid a quarterly cash dividend of $0.05 per share of Class A common stock. Its annualized dividend rate of $0.20 per share translates to a dividend yield of 1.05% on the current share price. Its four-year average yield is 1%. LBRT’s dividend payments have grown at 26% and 32% CAGRs over the past three and five years, respectively.
LBRT’s trailing-12-month asset turnover ratio of 1.85x is 203.4% higher than the industry average of 0.61x. Its trailing-12-month ROCE, ROTC, and ROTA of 40.99%, 26.49%, and 21.03% are 92.1%, 149.8%, and 160.8% higher than the industry averages of 21.34%, 10.60%, and 8.06%, respectively.
Over the past three and five years, its revenue grew at CAGRs of 49% and 19.3%, respectively, while its EBITDA grew at 109.3% and 22.7% CAGRs over the same periods.
Moreover, backed by strong free cash flows, LBRT returned around $69 million to shareholders through share repurchases and a quarterly cash dividend during the second quarter of fiscal 2023.
For the second quarter that ended June 30, 2023, LBRT’s revenue increased 26.8% year-over-year to $1.19 billion. Its operating income grew 86.7% from the year-ago quarter to $206.48 million. Also, the company’s adjusted EBITDA stood at $311.46 million, up 58.8% year-over-year.
Furthermore, net income attributable to LBRT stockholders was $152.67 million and $0.87 per share, representing increases of 45.2% and 58.2% over the prior year’s quarter, respectively.
Street expects LBRT’s revenue and EPS in the fiscal year ending December 2023 to increase 12.1% and 24.1% year-over-year to $4.65 billion and $3.24, respectively. The company surpassed consensus revenue and EPS estimates in three of the trailing four quarters.
The stock has gained 34.4% over the past year to close the last trading session at $19.02. Over the past six months, it gained 41.5%.
LBRT’s POWR Ratings reflect its positive prospects. The stock has an overall B rating, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has an A grade for Momentum and a B for Growth and Value. Within the 48-stock Energy-Services industry, it is ranked #15.
To see additional POWR Ratings for Stability, Sentiment, and Quality for LBRT, click here.
Stock #2: Gibson Energy Inc. (GBNXF)
Headquartered in Calgary, Canada, GBNXF gathers, stores, optimizes, processes, and markets liquids and refined products in North America. It operates through two segments: Infrastructure and Marketing.
In August, GBNXF acquired South Texas Gateway Terminal LLC for $1.1 billion. STGT is a world-class liquids terminal and export facility in Ingleside, Texas, with extensive crude carrier capabilities and direct pipeline connections to the prolific Permian and Eagle Ford basins. The highly strategic acquisition would reinforce GBNXF’s position as a leading liquids-focused infrastructure business.
Its annualized dividend rate of $1.15 per share translates to a dividend yield of 7.61% on the current share price. Its four-year average yield is 6.21%. GBNXF’s dividend payments have grown at CAGRs of 4.8% and 2.3% over the past three and five years, respectively.
GBNXF’s trailing-12-month asset turnover ratio of 2.75x is 350.5% higher than the industry average of 0.61x. Its trailing-12-month ROCE and ROTC of 47.53% and 11.16% are 122.8% and 5.3% higher than the industry averages of 21.34% and 10.60%, respectively.
Over the past three and five years, its net income grew at 16.3% and 51.6% CAGRs, respectively, while diluted EPS grew at CAGRs of 17.2% and 52% over the same periods.
For the fiscal second quarter that ended June 30, 2023, GBNXF’s revenue stood at CAD 2.61 billion ($1.92 billion). Its gross profit and operating income stood at CAD 94.78 million ($69.53 million) and CAD 79.88 million ($58.60 million), up 28.6% and 27.3% year-over-year, respectively.
For the same quarter, its net income and earnings per share increased 44.8% and 54.2% year-over-year to CAD 52.03 million ($38.17 million) and CAD 0.37, respectively.
Street expects GBNXF’s revenue in the fiscal third quarter ending September 2023 to increase 3.1% year-over-year to $2.01 billion. The company surpassed consensus revenue estimates in each of the trailing four quarters.
The stock has gained 1.2% intraday to close the last trading session at $15.09. Over the past five days, it gained 3.4%.
GBNXF’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
GBNXF has a B grade for Growth, Momentum, Stability, and Quality. Within the Energy-Services industry, it is ranked #6.
Beyond what we’ve stated above, we have also rated the stock for Value and Sentiment. Get all ratings of GBNXF here.
Stock #1: REX American Resources Corporation (REX)
REX produces and sells ethanol. The company also offers corn, distiller grains, non-food grade corn oil, gasoline, and natural gas. In addition, it provides dry distillers grains with soluble, which are used as a protein in animal feed.
REX’s trailing-12-month asset turnover ratio of 1.47x is 140.1% higher than the industry average of 0.61x, while its trailing-12-month cash per share of $5.84 is 749.5% higher than the industry average of $0.69.
Over the past three and five years, its revenue grew at CAGRs of 36.8% and 12%, respectively, while its total assets grew at 7.9% and 4.5% CAGRs over the same periods.
For the fiscal second quarter that ended July 31, 2023, REX’s net sales and revenue stood at $211.98 million. Its gross profit stood at $18.35 million, up 30.1% year-over-year.
For the same quarter, its net income attributable to REX common shareholders and net income per share attributable to REX common shareholders stood at $9.06 million and $0.52. As of July 31, 2023, its total current assets amounted to $387.94 million, compared to $372.64 million as of January 31, 2023.
Street expects REX’s EPS in the fiscal third quarter ending October 2023 to increase 338.9% year-over-year to $0.79. Its revenue is expected to come at $197 million. The company surpassed consensus revenue and EPS estimates in three of the trailing four quarters.
The stock has gained 28.9% over the past year to close the last trading session at $37.51. Over the past six months, it gained 30.1%.
REX’s robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system.
REX has a B grade for Sentiment and Quality. It is ranked #4 within the same industry.
Click here for the additional POWR Ratings for REX (Growth, Value, Momentum, 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.
LBRT shares were trading at $19.62 per share on Tuesday afternoon, up $0.60 (+3.15%). Year-to-date, LBRT has gained 23.77%, versus a 15.07% 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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