Last Thursday, natural gas prices rallied 46% as the front-month February futures contract expired at the end of the trading session. And according to Dow Jones Market data, Natural gas for February delivery was up $1.99, marking its largest percentage rise since October.
After the considerable upswing, natural gas prices continued to rally as LNG flows hit record levels on expectations of colder than normal weather throughout most of the Midwest and East coast. On Friday, prices rallied a further 8.3%. Moreover, the United States Energy Information Administration (EIA) forecasted that the natural gas spot price at the benchmark Henry Hub would average $3.79 per million British thermal units (MMBtu) in 2022.
Given this backdrop, we think the shares of natural gas companies Western Midstream Partners, LP (WES) and SilverBow Resources, Inc. (SBOW) might be solid bets, given the companies’ strong fundamentals.
Western Midstream Partners, LP (WES)
WES, which is headquartered in The Woodlands, Tex., acquires, owns, develops, and operates midstream assets in the U.S. The company gathers, compresses, and treats natural gas. It also stabilizes and transports condensate, natural gas liquids (NGLs), and crude oil, and disposes of produced water.
WES’ total revenues increased 12.5% year-over-year to $763.84 million in its fiscal third quarter, ended September 30. Its operating income rose 10.4% from the prior-year quarter to $383.27 million. Its net income and net income per common unit improved 3.7% and 10.9%, respectively, from the same period in the prior year to $263.64 million and $0.61.
The Street’s $2.25 EPS estimate for the fiscal year 2021 indicates a 90.7% year-over-year increase. And the Street’s $2.96 billion revenue estimate for the same year reflects a 6.7% improvement from the prior-year period.
The stock has gained 59.2% in price over the past year and 17.3% over the past six months to close Friday’s trading session at $23.45.
WES’ strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates 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.
WES has a Momentum grade of A and a Stability and Quality grade of B. In the 35-stock MLPs – Oil & Gas industry, it is ranked #9. The industry is rated A. Click here to see the additional POWR Ratings for WES (Growth, Value, and Momentum).
SilverBow Resources, Inc. (SBOW)
Houston, Tex.-based SBOW is an oil and natural gas exploration and production company that is focused primarily on the Eagle Ford Shale developments in South Texas.
On November 22, SBOW closed its acquisition of oil and gas assets in the Eagle Ford shale, from anonymous sellers, at an aggregate purchase price of $75 million, payable in cash and common stock. The acquisition is expected to enhance the company’s productive capability.
And on November 15, the company announced an amendment to its revolving credit facility, increasing its borrowing base to $460 million from $300 million and an amendment to its Second Lien Notes Purchase Agreement, extending its maturity date to December 2026. The company expects these amendments to increase its liquidity and allow it to execute strategic mergers and acquisitions.
For its fiscal third quarter, ended September 30, SBOW’s oil and gas sales revenues increased 117.2% year-over-year to $99.25 million. Its operating income improved 359.6% from the prior-year quarter to $59.64 million. And its adjusted EBITDA climbed 60.1% from the same period in the prior year to $57.63 million.
The $3.24 consensus EPS estimate for the fiscal fourth quarter reflects an increase of 145.5% year-over-year. Likewise, the $115 million consensus revenue estimate for the current quarter indicates a 115.1% rise from the same period last year.
Over the past year, SBOW’s stock has gained 318.2% in price to close Friday’s trading session at $22.71. It has gained 14.6% over the past six months.
SBOW’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which translates to Strong Buy in our POWR Rating system.
SBOW has an A grade for Growth and Momentum and a B grade for Value, Sentiment, and Quality. It is ranked #2 78 stocks in the Energy – Oil & Gas industry. The industry is rated B. To see the additional SBOW POWR Rating for Stability, click here.
WES shares were trading at $24.08 per share on Monday afternoon, up $0.63 (+2.69%). Year-to-date, WES has gained 9.62%, versus a -5.70% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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