Despite an increased adoption of renewable energy sources, the strong demand for oil and gas is unlikely to diminish soon. Moreover, constrained supply could trigger a price rise, which is anticipated to positively stimulate the overall energy sector – a substantial factor to be considered by potential investors.
Given this backdrop, fundamentally strong energy stocks Marathon Petroleum Corporation (MPC), Par Pacific Holdings, Inc. (PARR), and Graham Corporation (GHM) could be solid buys now.
Wall Street experts and investors are meticulously inspecting trends in oil markets to forecast future trajectories. According to OPEC’s 2023 World Oil Outlook, global oil consumption could accelerate over the next two decades, potentially hitting 116 million barrels per day by 2045. The surge could outpace projections, led by rapid development in India, China, other Asian nations, Africa, and the Middle East.
Meteorologists have predicted milder-than-usual temperatures prevailing until December 23. However, seasonal cooling patterns could increase U.S. gas demand in the Lower 48 states, including exports. Financial firm LSEG forecasts a rise from 121.3 billion cubic feet per day (bcfd) this week to 124.8 bcfd in the following week and 127.3 bcfd in two weeks.
Meanwhile, the U.S. appears poised to surpass Australia and Qatar to become the largest global supplier of Liquified Natural Gas (LNG) by 2023. Surging global prices coupled with supply disruptions and sanctions due to Ukraine's ongoing conflict have fueled the growing demand for U.S. exports.
Amid geopolitical turbulence and supply cuts from Saudi Arabia and Russia, robust oil prices will likely be maintained. Goldman Sachs’ (GS) Asset & Wealth Management Investment Strategy Group suggests that throughout most of 2024, oil prices per barrel could oscillate between $70 and $100. JPMorgan anticipates market stability next year, projecting an average price per barrel for Brent crude oil at $83.
Given the industry tailwinds, it's time to examine the fundamentals of the three energy industry stocks.
Marathon Petroleum Corporation (MPC)
MPC operates as an integrated downstream energy company primarily in the United States. It operates in two segments: Refining & Marketing and Midstream.
On October 25, MPC’s board of directors approved an increase to the quarterly dividend to $0.825 per share, payable to the shareholders on December 11, 2023. Its annualized dividend rate of $3.30 per share translates to a dividend yield of 2.31% on the current share price. Its four-year average yield is 3.85%.
MPC’s dividend payments have grown at CAGRs of 9.9% and 10.8% over the past three and five years, respectively. The company has a record of paying dividends for 12 consecutive years.
The Board of Directors approved an incremental $5 billion share repurchase authorization. With the addition of this new authorization, the company has a total of $8.3 billion available under its share repurchase authorizations as of October 27.
MPC’s trailing-12-month cash from operations of $17.38 billion is significantly higher than the industry average of $669.40 million. Its trailing-12-month ROCE, ROTC, and ROTA of 43.98%, 16.33%, and 12.84% are 120%, 75.6%, and 71.4% higher than the industry averages of 19.99%, 9.30%, and 7.49%, respectively.
In the fiscal third quarter, the company returned approximately $3.1 billion of capital to shareholders through $2.8 billion in share repurchases and $297 million of dividends.
In the fiscal third quarter that ended September 30, 2023, MPC’s total revenues and other income, and income from operations stood at $41.58 billion and $4.75 billion, respectively. Its adjusted income per share increased 4.2% from the year-ago quarter to $8.14.
For the same quarter, adjusted net income attributable to MPC and adjusted EBITDA stood at $3.22 billion and $5.71 billion, respectively. As of September 30, 2023, its total current assets came at $36.28 billion, compared to $35.24 billion as of December 31, 2022.
Street expects MPC’s revenue and EPS for the fiscal fourth quarter ending December 2023 to be $35.40 billion and $2.84, respectively. The company surpassed consensus EPS estimates in each of the trailing four quarters and consensus revenue estimates in three of the trailing four quarters, which is impressive.
The stock has gained 31.4% over the past year to close the last trading session at $143.02. Over the past six months, it gained 27.2%.
MPC’s POWR Ratings reflect its positive prospects. The stock has an overall B rating, equating 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 an A grade for Quality and a B for Momentum. Within the Energy – Oil & Gas industry, it is ranked #8 out of 85 stocks.
To see additional POWR Ratings for Growth, Value, Stability, and Sentiment for MPC, click here.
Par Pacific Holdings, Inc. (PARR)
PARR owns and operates energy and infrastructure businesses. The company operates through Refining; Retail; and Logistics segments.
PARR’s trailing-12-month asset turnover ratio of 2.25x is 310% higher than the industry average of 0.55x. Its trailing-12-month ROCE, ROTC, and ROTA of 64.77%, 23.25%, and 13.48% are 224%, 150%, and 79.9% higher than the industry averages of 19.99%, 9.30%, and 7.49%, respectively.
In the fiscal third quarter that ended September 30, 2023, PARR’s revenues increased 25.4% year-over-year to $2.58 billion, while operating income stood at $196.87 million. Moreover, its adjusted EBITDA stood at $255.75 million, up 19.5% from the year-ago quarter.
For the same quarter, adjusted net income and adjusted net income per common share increased 12.5% and 9.4% from the prior-year quarter to $193.50 million and $3.15, respectively. As of September 30, 2023, its total current assets stood at $2.18 billion, compared to $1.88 billion as of December 31, 2022.
Street expects PARR’s revenue for the fiscal fourth quarter ending December 2023 to increase 19.8% year-over-year to $2.17 billion. Its EPS is expected to be $1.29. The company surpassed consensus revenue estimates in each of the trailing four quarters.
The stock has gained 41% over the past six months to close the last trading session at $33.55. Over the past year, it has gained 67.3%.
PARR’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.
PARR has a B grade for Value, Momentum, and Quality. Within the Energy - Oil & Gas industry, it is ranked #7.
Beyond what we’ve stated above, we have also rated the stock for Growth, Stability, and Sentiment. Get all ratings of PARR here.
Graham Corporation (GHM)
GHM designs and manufactures fluid, power, heat transfer, and vacuum equipment for chemical and petrochemical processing, defense, space, petroleum refining, cryogenic, energy, and other industries.
On November 10, GHM acquired P3 Technologies, LLC, a custom turbomachinery engineering, product development and manufacturing business to expand its custom turbomachinery capabilities and technology solutions.
P3’s Multi-Channel Diffuser (MCD) and Self-Contained Actuating Magnetic Pump (SCAMP) provide a product family platform that can be leveraged across many applications and industries. This is an impressive manifestation of the acquisition aspect within its growth strategy.
GHM received record monthly orders of approximately $110 million in October 2023, including follow-on orders for critical U.S. Navy programs. These defense orders should bode well for the company and are expected to be reflected in GHM’s revenue from the fourth quarter of fiscal 2025 through early fiscal 2030.
GHM’s trailing-12-month CAPEX/Sales of 3.35% is 12.5% higher than the industry average of 2.98%, while its trailing-12-month levered FCF margin of 11.18% is 85.2% higher than the industry average of 6.04%.
In the fiscal second quarter that ended September 30, 2023, GHM’s net sales and gross profit increased 18.2% and 36.2% year-over-year to $45.08 million and $7.19 million, respectively. Moreover, its adjusted EBITDA stood at $2.71 million, up 76.3% from the year-ago quarter.
For the same quarter, adjusted net income and adjusted net income per share increased 321.8% and 333.3% from the prior-year quarter to $1.37 million and $0.13, respectively. As of September 30, 2023, its total current assets stood at $120.12 million, compared to $110.07 million as of March 31, 2023.
Street expects GHM’s revenue and EPS for the fiscal year ending March 2024 to increase 12.4% and 800% year-over-year to $176.60 million and $0.27, respectively. The company surpassed consensus revenue and EPS estimates in each of the trailing four quarters.
The stock has gained 86.8% year-to-date to close the last trading session at $17.97. Over the past six months, it has gained 36.2%.
GHM’s robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system.
GHM has an A grade for Sentiment and a B for Value. It is ranked #11 out of 49 stocks within the Energy - Services industry.
Click here for the additional POWR Ratings for GHM (Growth, Momentum, Stability, and Quality).
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.
MPC shares were unchanged in premarket trading Monday. Year-to-date, MPC has gained 25.76%, versus a 21.67% 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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