Amid forecasts of a oil prices rise this year, driven by increasing demand and tight supplies, the oil and gas sector is primed to demonstrate immense resilience. Given this backdrop, fundamentally robust energy stocks Phillips 66 (PSX), Weatherford International plc (WFRD), and ChampionX Corporation (CHX) could be wise portfolio additions now.
The energy sector’s future underscores its pivotal role in human development, where renewable energy growth is expected to complement the persistent reliability on oil and gas, anticipated to meet over half of the global energy requirement by 2050.
According to the International Energy Agency (IEA), global oil demand could surge to 1.30 million barrels per day by 2024. The IEA also forecasted a slight supply deficit this year following OPEC+ members extended production cuts. Additionally, Ukrainian drone attacks on Russian refineries and retaliatory attacks on Ukrainian oil plants, Red Sea ship incidents, and failed mediation in the Israel-Gaza conflicts, could further drive oil prices up.
Brent crude futures for May rose to $87.32 a barrel, while the more actively traded June contract rose 1.2% to $86.46. Morgan Stanley raised its Brent oil price forecasts by $10 per barrel to $90 for the fiscal third quarter of 2024.
Furthermore, the incorporation of advanced technology in the oil and gas industry, vital for modernization and efficiency, could keep the industry resilient. From cloud services to IoT, these technologies revolutionize operations, ensuring safety, optimizing production, and enhancing sustainability, ultimately driving better outcomes and experiences for stakeholders.
Considering these conducive trends, let's take a look at the fundamentals of the three energy stocks.
Phillips 66 (PSX)
PSX operates as an energy manufacturing and logistics company in the U.S., the United Kingdom, Germany, and internationally. It operates through four segments: Midstream; Chemicals; Refining; and Marketing and Specialties (M&S).
On March 1, PSX paid its shareholders a quarterly dividend of $1.05 per share on the company’s common stock. Its annualized dividend is $4.20 per share, which translates to a dividend yield of 2.68% on the current share price.
Its four-year average yield is 4.43%. Over the past three and five years, PSX’s dividend payments have grown at CAGRs of 5.3% and 11.8%, respectively.
During the fourth quarter that ended December 31, 2023, PSX funded $634 million of capital expenditures and investments, $1.20 billion of share repurchases and $457 million in dividends. The company ended the quarter with 430 million shares outstanding.
PSX’s trailing-12-month cash from operations of $7.03 billion is 959.9% higher than the industry average of $663.17 million. Its trailing-12-month ROCE, ROTC, and ROTA of 23.32%, 9.59%, and 9.29% are 32.2%, 16.2%, and 39.1% higher than the industry averages of 17.64%, 8.26%, and 6.68%, respectively.
Over the past three and five years, its revenue grew at CAGRs of 32% and 5.7%, respectively, while its total assets grew at 11.3% and 6.8% CAGRs over the same periods.
For the fiscal fourth quarter that ended December 31, 2023, PSX’s total revenues and other income, and income before income taxes stood at $38.74 billion and $1.76 billion, respectively. Moreover, its PSX adjusted EBITDA stood at $2.69 billion.
For the same quarter, its adjusted net income attributable to PSX and adjusted earnings per share of common stock stood at $1.36 billion and $3.09, respectively.
Street expects PSX’s revenue and EPS for the fiscal first quarter ending March 2024 to be $33.85 billion and $2.52, respectively. The company surpassed consensus EPS estimates in three of the trailing four quarters, which is impressive.
The stock has gained 71.7% over the past nine months to close the last trading session at $158.96. Over the past year, it has gained 65.2%.
PSX’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. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has a B grade for Momentum. Within the Energy - Oil & Gas industry, it is ranked #12 out of 83 stocks.
Beyond what we’ve stated above, we have also rated the stock for Growth, Value, Stability, Sentiment, and Quality. Get all ratings of PSX here.
Weatherford International plc (WFRD)
WFRD provides equipment and services for the drilling, evaluation, completion, production, and intervention of oil, geothermal, and natural gas wells worldwide. The company operates through three segments: Drilling and Evaluation; Well Construction and Completions; and Production and Intervention.
On December 6, 2023, WFRD was awarded a five-year contract with Petróleo Brasileiro S.A. in Brazil, after a competitive tender, to provide Drill Pipe Riser ultra deepwater offshore intervention systems and services.
This new seven-system contract will commence operations in March 2025 and will replace a current six-system contract that began in November 2020.
WFRD’s trailing-12-month asset turnover ratio of 1.05x is 101.8% higher than the industry average of 0.52x. Similarly, its trailing-12-month cash per share of $13.31 is significantly higher than the industry average of $0.98.
Over the past three and five years, its EBITDA grew at CAGRs of 35.7% and 9.6%, respectively, while its revenue grew at a 11.7% CAGR over the past three years.
For the fiscal fourth quarter that ended December 31, 2023, WFRD’s total revenues and operating income stood at $1.36 billion and $216 million, up 12.7% and 27.8% year-over-year, respectively. Moreover, its adjusted free cash flow increased 84.2% from the prior-year quarter to $315 million.
For the same quarter, its net income attributable to WFRD and income per share stood at $140 million and $1.90, up 94.4% and 91.9% from the year-ago quarter, respectively.
Street expects WFRD’s revenue and EPS for the fiscal first quarter ending March 2024 to increase 11.6% and 51.3% year-over-year to $1.32 billion and $1.47, respectively. The company surpassed consensus revenue estimates in each of the trailing four quarters and consensus EPS estimates in three of the trailing four quarters.
The stock has gained 106.6% over the past year to close the last trading session at $116.49. Over the past nine months, it has gained 77.1%.
WFRD’s robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system.
WFRD has a B grade for Growth, Momentum, and Quality. It is ranked #10 within the Energy - Oil & Gas industry.
Click here for the additional POWR Ratings for WFRD (Value, Stability, and Sentiment).
ChampionX Corporation (CHX)
CHX provides chemistry solutions, artificial lift systems, and engineered equipment and technologies to oil and gas companies worldwide. The company operates through four segments: Production Chemical Technologies; Production & Automation Technologies; Drilling Technologies; and Reservoir Chemical Technologies.
On March 22, CHX announced its plans to acquire RMSpumptools Limited, a business unit of the energy division of UK-based James Fisher and Sons plc. The unit designs and manufactures highly engineered mechanical and electrical solutions for complex artificial lift applications.
Under the terms of the agreement, the net purchase price is approximately £86 million ($108.56 million) inclusive of net working capital adjustments. The integration of RMSpumptools technology will enhance CHX's Production and Automation Technologies portfolio, providing added value to the Company’s customers worldwide.
On February 27, CHX acquired Artificial Lift Performance Limited, a provider of advanced analytics solutions for enhancing oil and gas production performance. Based in Edinburgh, Scotland, ALP has extensive expertise in developing artificial lift optimization software designed to maximize production and extend the life of artificial lift equipment.
The acquisition of Artificial Lift Performance is key to CHX’s strategic focus on digital growth and their vision to deliver end-to-end digital solutions that enhance the productivity and profitability of its customers’ producing assets.
Its annualized dividend is $0.38 per share, which translates to a dividend yield of 1.10% on the current share price. Its four-year average yield is 0.44%.
CHX’s trailing-12-month asset turnover ratio of 1.13x is 118% higher than the industry average of 0.52x. Similarly, its trailing-12-month cash per share of $1.51 is 53.4% higher than the industry averages of $0.98.
Over the past three and five years, its revenue grew at CAGRs of 25.5% and 25.3%, respectively, while its EBITDA grew at 60.3% and 21.5% CAGRs over the same periods.
For the fiscal fourth quarter that ended December 31, 2023, CHX’s revenue and gross profit stood at $943.56 million and $282.22 million, respectively. Moreover, its adjusted EBITDA increased 10.4% from the year-ago quarter to $198.15 million.
For the same quarter, adjusted net income attributable to CHX stood at $86.30 million, while adjusted earnings per share attributable to CHX increased 2.3% year-over-year to $0.44.
Street expects CHX’s EPS for the fiscal first quarter ending March 2024 to increase 14.2% year-over-year to $0.41. Its revenue is expected to be $921.62 million for the same quarter. The company surpassed consensus EPS estimates in three of the trailing four quarters.
The stock has gained 37.8% over the past year to close the last trading session at $35.45. Over the past nine months, it has gained 22.9%.
CHX’s POWR Ratings reflect its positive prospects. The stock has an overall B rating, equating to Buy in our proprietary rating system.
CHX has a B grade for Growth, Momentum, and Quality. Within the Energy - Services industry, it is ranked #10 out of 50 stocks.
To see additional POWR Ratings for Value, Stability, and Sentiment for CHX, click here.
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.
PSX shares were unchanged in premarket trading Thursday. Year-to-date, PSX has gained 20.26%, versus a 10.38% 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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