The continuous global rise in oil and gas exploration and production to meet the soaring oil demand is driving an elevated demand for energy services. This could maintain a positive growth trend within the energy services sector.
Against this backdrop, let us explore energy services stocks REX American Resources Corporation (REX), Ranger Energy Services, Inc. (RNGR), and NCS Multistage Holdings, Inc. (NCSM) now.
However, prior to a deeper analysis of these stocks, it is crucial to briefly outline and familiarize ourselves with the broad landscape of the energy services sector.
The surge in oil demand from emerging economies, compounded by China's vigorous resurgence in fuel consumption, is predicted to sustain robust oil demand throughout 2023. According to the International Energy Agency (IEA), global oil demand is expected to escalate by 2.4 million bpd in 2023, setting a record at 102.3 million bpd, mainly driven by petrochemicals and aviation.
Meanwhile, OPEC believes global oil demand will rise to as high as 110 million bpd by 2045, increasing the world’s oil demand by 23% from now. OPEC's Secretary General, Haitham Al Ghais, stated that ″Oil is irreplaceable for the foreseeable future,” noting that in two decades, oil's position in the global energy mix will remain strong, constituting about 29%.
Exploration and production companies consistently seek new sources to fuel this increasing demand for oil and gas. Services essential to these efforts include drilling, completion, production, and well intervention, presenting a profitable avenue for leading energy firms. Historically, upstream oil and gas projects have generated returns of around 15% to 20%.
According to oil services firm Baker Hughes, the number of offshore drilling vessels, instrumental in the exploration and production of oil and gas, recovered in May 2023 to pre-pandemic levels, rising by 45% from October 2020 lows.
Moreover, Wood Mackenzie analysts forecast that rising oil demand and ensuing explorative activities will drive offshore exploration and drilling activity up by as much as 20% by 2025.
Furthermore, the global oilfield services market is projected to grow to $451.20 billion by 2030, growing at a CAGR of 5.1%. Also, SPDR S&P Oil & Gas Exploration & Production ETF (XOP) has gained 9.6% over the past year, substantiating investors’ interest.
Given this backdrop, quality energy services stocks REX, RNGR, and NCSM could be wise portfolio additions now.
REX American Resources Corporation (REX)
produces and sells ethanol in the United States. The company also offers corn, distillers grains, non-food grade corn oil, gasoline, and natural gas. In addition, it provides dry distillers grains with soluble, which is used as a protein in animal feed.
REX’s forward EV/Sales of 0.56x is 71.7% lower than the 1.97x industry average. Its forward Price/Sales multiple of 0.81 is 38.3% lower than the industry average of 1.31.
REX’s revenue has grown at 30.1% and 13.7% CAGRs over the past three and five years, respectively. Moreover, its total assets and levered FCF have grown at 6% and 71.4% CAGRs over the past three years, respectively.
For the fiscal first quarter that ended April 30, 2023, REX’s net sales and revenue increased 9.5% year-over-year to $212.71 million, while its gross profit rose 26.2% year-over-year to $15.03 million.
Net income attributable to REX common shareholders increased 1% from its year-ago value to $5.24 million, while net income per share increased 3.4% year-over-year to $0.30. REX’s total current liabilities stood at $36.19 million as of April 30, 2023, compared to $54.60 million as of January 31, 2023.
The consensus EPS estimate of $0.62 for the fiscal third quarter ending October 2023 represents a 244.4% growth year-over-year. Its revenue is expected to come in at $196 million. The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
Over the past year, the stock has gained 23.4% in price to close its last trading session at $35.25. The stock has gained 21.3% over the past three months.
REX’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
REX has a B grade for Value, Sentiment, and Quality. Within the Energy – Services industry, it is ranked #5 out of 47 stocks.
To see additional POWR Ratings (Growth, Momentum, and Stability) for REX, click here.
Ranger Energy Services, Inc. (RNGR)
RNGR provides onshore high-specification well service rigs, wireline completion services, and complementary services to exploration and production companies in the United States. It operates through three segments: High Specification Rigs; Wireline Services; and Processing Solutions and Ancillary Services.
In terms of forward EV/Sales, RNGR’s 0.42x is 78.6% lower than the 1.97x industry average. Likewise, its forward Price/Sales multiple of 0.37 is 71.4% lower than the industry average of 1.31.
RNGR’s revenue has grown at 24.9% and 27.9% CAGRs over the past three and five years, respectively. Moreover, its total assets and levered FCF have grown at 8.2% and 14.6% CAGRs over the past three years, respectively.
For the fiscal first quarter that ended March 31, 2023, RNGR’s total revenue increased 27.4% year-over-year to $157.50 million. The company’s adjusted EBITDA came in at $20.1 million, up 109.4% from the year-ago quarter. Its free cash flow for the quarter stood at $12 million, compared to a negative $13.70 million for the previous-year quarter.
Its net income for the quarter stood at $6.20 million compared to a net loss of $5.70 million in the prior-year quarter, and its income per common share came in at $0.25, compared to a net loss per share of $0.31 in the year-ago quarter.
For the fiscal year ending December 2023, RNGR’s revenue and EPS are expected to increase 10.8% and 73.2% year-over-year to $674 million and $1.68, respectively. RNGR topped consensus revenue estimates in three of the four trailing quarters.
Over the past five days, the stock has lost 3.1% to close the last trading session at $9.88.
RNGR’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, which translates to Buy in our proprietary rating system.
It has an A grade for Growth, Value, and Momentum. RNGR is ranked #4 within the same industry.
To see the other ratings of RNGR for Stability, Sentiment, and Quality, click here.
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 0.38x, 77.9% lower than the industry average of 1.70x. Its trailing-12-month Price/Sales multiple of 0.27 is 77% lower than the industry average of 1.15x.
NCSM’s EBIT has grown at 32.6% CAGR over the past three years, while its tangible book value grew at 1.8% CAGR over the past five years.
For the fiscal first quarter that ended March 31, 2023, NCSM’s total revenues increased 11.4% year-over-year to $43.55 million, while its income from operations came in at $1.28 million, compared to a loss from operation of $2.20 million during the previous-year quarter. Its adjusted EBITDA came in at $4.87 million, up 113.5% year-over-year.
The adjusted net income attributable to NCSM and adjusted earnings per share for the same quarter stood at $1.24 million and $0.50 per share, compared to net loss and loss per share of $1.76 million and $0.73, respectively, in the previous year’s quarter.
The stock gained 5.2% intraday to close the last trading session at $18.33. Over the past month, the stock has gained 3.3%.
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 #6 within the same industry.
Click here for additional ratings for NCSM’s Growth and Stability.
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REX shares were trading at $35.40 per share on Tuesday morning, up $0.15 (+0.43%). Year-to-date, REX has gained 11.11%, versus a 16.07% 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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