Oil demand rose significantly in the first half of 2021 thanks to a fast-paced economic reopening. Rising demand and production cuts drove oil prices to their near two-and-a-half-year highs.
However, the rapid spread of the COVID-19 Delta variant is now threatening to cool oil demand. As several countries reinstate travel restrictions to curb the spread of the virus, oil demand will likely remain low in the near term. Meanwhile, earlier this month, OPEC+ closed a deal to increase oil supply gradually, aiming to fully phase out production cuts by around September 2022. So, with depressed demand and a supply glut, oil prices are expected to decline further in the coming months.
Given this backdrop, we believe fundamentally weak energy stocks EQT Corporation (EQT), Tellurian Inc. (TELL), and Delek US Holdings, Inc. (DK) are best avoided now.
EQT Corporation (EQT)
EQT operates as a natural gas production company in the United States. The Pittsburgh, Pa.-based company produces natural gas, natural gas liquids (NGLs), and crude oil.
On June 29, Halper Sadeh LLP, a global investor rights law firm, announced that it was investigating EQT concerning alleged violations of the federal securities laws and/or breaches of fiduciary duties relating to its merger with Alta Resources Development, LLC. Other law firms are also investigating the issue.
EQT’s total operating revenues came in at a negative $260.12 million, indicating a decline of 149.4% year-over-year in its fiscal second quarter, ended June 30. Its operating loss grew 214.7% from its year-ago value to $1.22 billion, while its net loss increased 256% year-over-year to $936.46 million over the period. The company’s loss per share increased 225.3% year-over-year to $3.35.
A $1.09 billion consensus revenue estimate for its fiscal third quarter, ending September 2021 indicates a 27.2% improvement from the same period last year. However, its EPS is expected to remain negative in the current quarter.
Over the past month, EQT share price has declined 10.8% to close yesterday’s trading session at $19.17.
EQT has an overall D rating, which equates to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
EQT has a D grade for Value, Stability, and Quality. Among the 91 stocks in the Energy - Oil & Gas industry, EQT is ranked #82.
Beyond what we’ve stated above, we have also rated EQT for Growth, Sentiment, and Momentum. Click here to view all EQT ratings.
Tellurian Inc. (TELL)
Houston, Tex.-based TELL is an oil and gas exploration and production company that focuses on developing liquefied natural gas (LNG) projects along the United States Gulf Coast. The company is developing a portfolio of natural gas production, liquefied natural gas (LNG) marketing, and infrastructure assets.
On August 6, TELL announced the closing of a public offering of 35,000,000 shares of common stock at $3.00 per share. The offering should lead to a dilution of its share capital and thus decrease in EPS value.
TELL incurred a $30.60 million net loss, indicating a 76.3% decline in its income year-over-year in its fiscal second quarter, ended June 30. Its loss from operations decreased 74.6% from its year-ago value to $29.14 million. The company’s cost of sales increased 953% year-over-year to $25.37 million.
Analysts expect TELL’s revenues to increase 30.1% year-over-year to $18.56 million in the current quarter, ending September 2021. However, the company’s EPS is expected to remain negative at least until the next year.
Shares of TELL have slumped 31.4% over the past month and 14% over the past five days.
It is no surprise that TELL has an overall F rating, which equates to a Strong Sell in our proprietary POWR Ratings system. The stock also has an F grade for Stability and Sentiment, and a D grade for Value and Quality. It is ranked #88 in the same industry.
To see additional TELL ratings for Growth and Momentum, click here.
Delek US Holdings, Inc. (DK)
DK engages in the integrated downstream energy business in the United States. The company operates in three segments: Refining; Logistics, and Retail. DK is based in Brentwood, Tenn.
On April 9, CVR Energy Inc, DK's largest shareholder, reportedly filed a lawsuit against the company seeking documents that detail how DK’s Chief Executive Officer received “eye-popping” compensation over the past eight years, some of which wasn’t disclosed in proxy statements.
DK’s operating income declined 474.6% from its year-ago value to a negative $85.40 million in the fiscal second quarter, ending June 30. DK reported an $81.10 million net loss , indicating a 192.5% decline in income year-over-year. The company’s EPS has decreased 193.2% to a negative $1.10.
The Street expects DK’s revenues to rise 18.7% year-over-year to $2.45 billion in the current quarter, ending September 2021. However, its EPS is expected to remain negative, at least for the current year. Also, DK missed the Street’s EPS estimates in three of the trailing four quarters.
DK’s stock has lost 22.5% over the past six months to close yesterday’s trading session at $16.68. The stock’s price has slumped 14.7% over the past month.
The company has an overall D rating, which translates to Sell in our POWR Ratings system. In addition, DK has an F grade for Sentiment. It is ranked #79 in the Energy - Oil & Gas industry.
Click here to see POWR Ratings for Growth, Stability, Value, Momentum, and Quality.
EQT shares fell $0.02 (-0.11%) in after-hours trading Thursday. Year-to-date, EQT has gained 47.44%, versus a 19.83% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.
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