Even as the world shows a growing preference for sustainable energy sources, the traditional energy sector is expected to maintain a favorable position, primarily driven by robust demand for oil and gas.
Given the backdrop, in this article, we examine the fundamentals of three energy stocks, North American Construction Group Ltd. (NOA), Ranger Energy Services, Inc. (RNGR), and NCS Multistage Holdings, Inc. (NCSM), which could be wise portfolio additions.
Despite the global inclination toward more sustainable energy sources, the earnings reports for the second quarter of select prominent oil and gas companies in the United States have unveiled that the fossil fuel industry maintains its ability to generate substantial profits.
The global oil demand achieved a new record of 103 million barrels per day in June, and there is a potential for another peak in demand this month. International Energy Agency (IEA) predicts that global oil demand is positioned to expand by 2.2 million barrels per day to reach its highest annual level ever at 102.2 million barrels per day by this year’s end.
Moreover, Joseph McMonigle, the Secretary General of the International Energy Forum (IEF), attributes the rise in oil prices during the latter part of the year to the escalating demand from emerging economies, with a notable focus on China and India. The combined contribution of these two nations is projected to add up to a total of 2 million barrels per day to the surge in global oil demand.
Furthermore, the global oilfield service market, which was valued at $292.63 billion in 2022, is forecasted to reach $427.60 billion by 2028, expanding at a CAGR of 6.5% between 2023 and 2028.
Given the growing demand for oil and gas, let us dig deeper into the fundamentals of the featured energy stocks to understand why they are thriving on Wall Street.
North American Construction Group Ltd. (NOA)
Headquartered in Acheson, Canada, NOA provides equipment maintenance, and mining and heavy construction services in Canada, the United States, and Australia. The company serves resource development and industrial construction sectors.
On July 26, NOA announced its definitive purchase and sale agreement to acquire MacKellar Group, situated in Australia, which specializes in heavy earthworks solutions for the mining and civil sectors, boasting a strong track record built over several decades.
This acquisition is anticipated to bolster NOA's operational capabilities and enable the company to cater to a diverse and valuable global customer base.
The stock’s trailing-12-month ROCE of 26.13% is 22.4% higher than the 21.34% industry average. Also, its trailing-12-month asset turnover ratio of 0.94x is 53.2% higher than the 0.61x industry average.
For the fiscal second quarter, which ended on June 30, 2023, NOA’s revenue increased 15.2% year-over-year to C$193.57 million ($142.92 million). Its gross profit rose 73.1% from the year-ago value to C$21.53 million ($15.89 million). Also, its operating income grew 62.9% year-over-year to C$10.27 million ($7.58 million).
In addition, the company’s adjusted net earnings and adjusted EPS amounted to C$12.49 million ($9.22 million) and C$0.47, up 164.7% and 176.5% from the prior-year quarter, respectively. While its adjusted EBITDA improved 24.5% year-over-year to C$51.83 million ($38.27 million).
The consensus revenue estimate of $159.05 million for the fiscal third quarter (ending September 2023) represents a 12.7% increase year-over-year. The consensus EPS estimate of $0.48 for the current quarter indicates a 14.4% improvement year-over-year.
Moreover, the company has an impressive surprise history, surpassing the consensus revenue estimates in each of the trailing four quarters.
NOA’s shares have gained 112.5% over the past year and 80.9% over the past nine months to close the last trading session at $24.16.
NOA’s POWR Ratings reflect this promising outlook. It has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Momentum and Sentiment. Among the 57 stocks in the Energy - Services industry, it is ranked #6. To see additional POWR Ratings for Growth, Value, Stability, and Quality for NOA, 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.
On June 26, RNGR was selected to join the broad-market Russell 3000®Index. FTSE Russell uses market-capitalization rankings and style attributes to determine Russell index membership. Investors widely utilize these indexes for benchmarking and index funds.
Inclusion in the U.S. all-cap Russell 3000® Index, lasting a year, also results in automatic entry into the small-cap Russell 2000® Index and relevant growth and value style indexes.
Commenting on this, Stuart Bodden, RNGR’s Chief Executive Officer, said, “As the largest provider of well service rigs in the onshore U.S., this milestone signifies our growth and industry leadership. Joining the index will amplify our visibility, attracting new investors and fueling future growth opportunities.”
The stock’s trailing-12-month levered FCF margin of 6.66% is 9.2% higher than the 6.10% industry average. Also, its trailing-12-month asset turnover ratio of 1.17x is 184.6% higher than the 0.61x industry average. In addition, its trailing-12-month ROTA of 9.18% is 13.9% higher than the 8.06% industry average.
In the fiscal second quarter, which ended on June 30, 2023, RNGR’s total revenue increased 6.3% year-over-year to $163.20 million, while its operating income amounted to $11.40 million versus an operating loss of $2.20 million in the prior-year quarter.
Also, the company’s net income and EPS stood at $6.10 million and $0.24, compared to a net loss and loss per share of $400 thousand and $0.02 in the same period last year, respectively. Moreover, its cash and cash equivalents came in at $6.40 million, up 72.9% compared to $3.70 million as of December 31, 2022.
Analysts expect RNGR’s revenue and EPS for the fourth quarter (ending December 2023) to increase 6.5% and 17.2% year-over-year to $164.25 million and $0.39, respectively.
The stock has gained 46.6% over the past year to close the last trading session at $12.46.
RNGR’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to Buy in our proprietary rating system.
It also has an A grade for Value and Momentum and a B for Growth. Within the same industry, it is ranked #5. Click here to see the other ratings of RNGR for Stability, Sentiment, and Quality.
NCS Multistage Holdings, Inc. (NCSM)
NCSM provides engineered products and support services for oil and natural gas well completions and field development strategies in the United States, Canada, and internationally.
NCSM’s trailing-12-month cash per share of $5.64 is 749.1% higher than the $0.66 industry average. Furthermore, its trailing-12-month asset turnover ratio of 1.17x is 91.6% higher than the 0.61x industry average.
For the six-month period, which ended on June 30, 2023, NCSM’s total revenues increased 3.6% year-over-year to $68.95 million. Its adjusted EBITDA rose significantly from the year-ago value to $2.63 million. During the same period, the company’s cash and cash equivalents came in at $13.75 million, while its total current assets stood at $85.30 million.
Street expects NCSM’s revenue and EPS for the fiscal third quarter (ending September 2023) to be $51.10 million and $2.59, respectively. Additionally, its EPS is projected to improve by 100% per annum over the next five years.
The stock has gained marginally intraday to close the last trading session at $17.77.
It’s no surprise that NCSM has an overall rating of B, which translates to Buy in our proprietary rating system. It has an A grade for Momentum and a B for Value, Sentiment, and Quality. It is ranked #4 in the same industry.
In addition to the POWR Ratings we’ve stated above, we also have NCSM’s ratings for Growth and Stability. Get all NCSM ratings here.
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NOA shares were trading at $24.50 per share on Wednesday afternoon, up $0.34 (+1.41%). Year-to-date, NOA has gained 84.76%, versus a 16.56% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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