The world’s growing energy needs are boosting the demand for energy services. The energy services industry is expected to get an additional boost from the rising investments in sustainable energy projects.
Considering these factors, it could be wise to buy fundamentally strong energy stocks ChampionX Corporation (CHX), NCS Multistage Holdings, Inc. (NCSM), and Ranger Energy Services, Inc. (RNGR).
Before diving deeper into the fundamentals of these stocks, let’s discuss why the energy services sector is well-positioned to grow.
Last year, oil prices climbed above $100 per barrel due to worries over the lack of supply arising due to the war between Ukraine and Russia. After cooling down briefly, crude oil prices are again soaring, crossing $90 a barrel for the first time since November 2022. Expectations of tighter oil supplies by the end of this year due to supply cuts by OPEC+ and Russia fuel the jump in oil prices.
Global oil demand rose by 3.26 million barrels per day during the second quarter of 2023 to reach 103 mb/d. According to JP Morgan, Brent oil prices, a benchmark for international crude oil prices, are likely to touch $150 per barrel due to robust demand and diminishing supplies.
Global electricity demand is projected to grow between 62% and 185% by 2050 when compared to 2021 levels. The EIA forecasts that U.S. power generation from renewables will rise from 21% in 2021 to 44% in 2050. Oil is expected to remain the largest energy source, just ahead of renewables.
With the reliance on oil unlikely to stutter anytime soon, energy companies offering services related to production, drilling, setting up, transportation, construction, rigs, etc., are likely to perform well. The global oilfield services market industry is projected to reach $421.31 billion by 2030, growing at a CAGR of 5.6%.
In light of these encouraging trends, let’s look at the fundamentals of the three promising Energy – Services stocks, beginning with number 3.
Stock #3: ChampionX Corporation (CHX)
CHX provides chemistry solutions, 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.
In terms of forward EV/Sales, CHX’s 1.94x is 13.8% lower than the 2.25x industry average.
In terms of the trailing-12-month levered FCF margin, CHX’s 14.80% is 123.8% higher than the 6.62% industry average. Likewise, its 1.14x trailing-12-month asset turnover ratio is 87.4% higher than the industry average of 0.61x. Furthermore, the stock’s 12.04% trailing-12-month Return on Total Capital is 13.6% higher than the industry average of 10.60%.
CHX’s revenue for the second quarter ended June 30, 2023, came in at $926.60 million. Its gross profit increased 33.2% over the prior-year quarter to $282.21 million. The company’s adjusted EBITDA rose 34.7% year-over-year to $186.24 million.
Its adjusted net income attributable to CHX increased 67% over the year-ago quarter to $99.06 million. Also, its adjusted EPS attributable to CHX came in at $0.49, representing an increase of 75% year-over-year.
Analysts expect CHX’s EPS for the quarter ending September 30, 2023, to increase 49.4% year-over-year to $0.49. Its revenue for the quarter ending December 31, 2023, to increase 3.1% year-over-year to $1.02 billion. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 99.2% to close the last trading session at $36.02.
CHX’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It is ranked #10 out of 48 stocks in the Energy – Services industry. It has an A grade for Momentum and a B for Growth and Quality. To see the other ratings of CHX for Value, Stability, and Sentiment, click here.
Stock #2: 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 forward EV/Sales, NCSM’s 0.35x is 84.2% lower than the 2.25x industry average. Its 3.04x forward EV/EBITDA is 47.9% lower than the 5.82x industry average. Likewise, its 0.24x forward Price/Sales is 85% lower than the 1.57x industry average.
In terms of the trailing-12-month asset turnover ratio, NCSM’s 1.17x is 91.8% higher than the 0.61x industry average.
For the fiscal second quarter that ended June 30, 2023, NCSM’s total revenues stood at $25.39 million. Its total Canada sales increased 11.5% year-over-year to $14.32 million. The company’s net working capital increased 0.9% over the prior-year quarter to $55.72 million.
For the quarter ending September 30, 2023, NCSM’s revenue is expected to increase 4.6% year-over-year to $51.10 million. Its EPS for fiscal 2024 is expected to increase 150% year-over-year to $3.13. Over the past three months, the stock has declined 7.1% to close the last trading session at $16.03.
NCSM’s POWR Ratings reflect its robust prospects. It has an overall rating of B, translating 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 #5 within the same industry. Click here to see the additional ratings of NCSM for Growth and Stability.
Stock #1: 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.
RNGR’s forward EV/Sales of 0.55x is 75.4% lower than the 2.25x industry average. Likewise, its forward Price/Sales of 0.51x is 67.3% lower than the industry average of 1.57x. Its forward EV/EBIT of 7.87x is 17.5% lower than the industry average of 9.55x.
In terms of the trailing-12-month asset turnover ratio, RNGR’s 1.74x is 184.9% higher than the industry average of 0.61x. Its trailing-12-month Return on Total Assets of 9.18% is 13.9% higher than the industry average of 8.06%. Likewise, its trailing-12-month levered FCF margin of 6.66% is 0.6% higher than the industry average of 6.62%.
RNGR’s total revenue for the fiscal second quarter that ended June 30, 2023, increased 6.3% year-over-year to $163.20 million. Its operating income came in at $11.40 million, compared to an operating loss of $2.20 million in the prior year quarter. The company’s adjusted EBITDA rose 21.7% year-over-year to $21.90 million.
Its net income came in at $6.10 million, compared to a net loss of $0.40 million in the year-ago quarter. Also, its income per common share came in at $0.24, compared to a loss per common share of $0.02 in the year-ago quarter.
Street expects RNGR’s revenue for the quarter ending December 31, 2023, to increase 6.5% year-over-year to $164.25 million. Its EPS for fiscal 2023 is expected to increase 51.7% year-over-year to $1.47. Over the past year, the stock has gained 58.1% to close the last trading session at $13.75.
RNGR’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, translating to Buy in our proprietary rating system.
It has an A grade for Momentum and a B for Growth and Value. It is ranked #4 in the Energy - Services industry. To see the other ratings of RNGR for Stability, Sentiment, and Quality, click here.
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CHX shares were trading at $36.50 per share on Wednesday morning, up $0.48 (+1.33%). Year-to-date, CHX has gained 26.97%, versus a 12.86% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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