Rapidly growing energy consumption globally and constrained supplies amid extended OPEC+ oil output cuts will likely drive oil prices, creating tailwinds for the oil and gas industry. The sector is further backed by increasing investments in oil drilling activities, supportive government initiatives, and numerous technological advancements.
Given the industry’s bright prospects, investors could consider buying fundamentally sound oil stocks EOG Resources, Inc. (EOG), Energy Transfer LP (ET), VAALCO Energy, Inc. (EGY), and PrimeEnergy Resources Corporation (PNRG) for substantial gains.
According to the Economist Intelligence Unit (EIU) energy outlook, global energy consumption is expected to rise by 1.8% in 2024, primarily driven by solid demand in Asia. Despite high prices and supply chain disruptions, high energy consumption can be attributed to population growth, a surge in industrial activities, urbanization, and more.
Moreover, OPEC remains optimistic regarding the global oil demand. For 2024, world oil demand is expected to grow by 2.2 million bpd year-over-year to 104.5 million bpd, driven by “strong air travel demand and healthy road mobility, including trucking, as well as industrial, construction, and agricultural activities in non-OECD countries.”
Further, OPEC’s global oil demand growth forecast indicates a substantial expansion of 1.8 million bpd year-over-year, averaging 106.3 million bpd.
On Sunday, OPEC+ announced that it would extend its deep oil output cuts into 2025 as the group aims to stabilize the oil market. OPEC+ members are currently slashing production by 5.86 bpd, or nearly 5.7% of global demand.
The oil and gas market is expected to grow to $9.35 trillion by 2028, exhibiting growth at a CAGR of 5.2%. The market growth is driven by factors including expansion of resource exploration and government measures, emphasis on emission reduction solutions, an increasing preference for reservoir modeling, and investments in oil drilling activities.
Considering the favorable market trends, let’s delve into the fundamentals of the top Energy – Oil & Gas stocks, beginning with the fourth choice.
Stock #4: EOG Resources, Inc. (EOG)
EOG explores for, develops, produces, and markets crude oil, natural gas liquids, and natural gas, primarily in producing basins in the U.S., the Republic of Trinidad and Tobago, and internationally.
In terms of forward non-GAAP P/E, EOG is trading at 10.44x, 8.5% lower than the industry average of 11.41x. Similarly, the stock’s forward EV/EBITDA multiple of 5.24 is 10.7% lower than the industry average of 5.87. Further, its forward EV/EBIT of 7.95x is 19% lower than the industry average of 9.81x.
EOG’s trailing-12-month EBITDA margin and net income margin of 56.11% and 31.27% are 64.1% and 170% higher than the respective industry averages of 34.20% and 11.58%, respectively. Also, the stock’s trailing-12-month levered FCF margin of 12.91% is considerably higher than the industry average of 6.21%.
In the first quarter that ended March 31, 2024, EOG’s total revenue increased 1.3% year-over-year to $6.12 billion. Its operating income was $2.27 billion for the quarter. Its adjusted net income of $1.63 billion, or $2.82 per share, indicates 3% and 4.8% growth from the year-ago value, respectively.
Also, the company’s free cash flow rose 14.5% from the prior year’s quarter to $1.22 billion.
Street expects EOG’s revenue and EPS to increase 8.6% and 20.7% year-over-year to $6.05 billion and $3.01 for the second quarter ending June 2024, respectively. Further, EOG topped the consensus revenue estimates in each of the trailing four quarters, which is impressive.
EOG’s stock gained 2.5% over the past six months and 17.6% over the past year to close the last trading session at $124.55.
EOG’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has an A grade for Quality and a B for Stability. EOG is ranked #12 among 79 stocks in the B-rated Energy – Oil & Gas industry.
Click here to access additional EOG ratings for Sentiment, Momentum, Growth, and Value.
Stock #3: Energy Transfer LP (ET)
ET provides energy-related services. It owns and operates natural gas transportation pipelines and natural gas storage facilities in Texas and Oklahoma and approximately 20,090 miles of interstate natural gas pipeline. It also sells natural gas to electric utilities, independent power plants, local distribution and other marketing companies, and industrial end-users.
On May 28, ET and WTG Midstream, LLC entered a definitive agreement under which ET will acquire WTG in a transaction valued at approximately $3.25 billion and includes eight gas processing plants (~1.3 Bcf/d) and two more under construction (~0.4 Bcf/d). The strategic acquisition will expand ET’s natural gas pipeline and processing network in the Permian Basin.
On April 24, ET announced an increase in its quarterly cash distribution to $0.3175 per common unit, $1.27 on an annualized basis, for the first quarter ended March 31, 2024. The cash distribution per common unit was paid on May 20, 2024, to unitholders of record as of the close of business on May 13, 2024, and indicates an increase of 3.3% compared to the first quarter of 2023.
ET pays an annual dividend of $1.27, which translates to a yield of 8.10% at the current share price. Its four-year average dividend yield is 9.55%. Moreover, the company’s dividend payouts have increased at a CAGR of 18.1% over the past three years.
In the first quarter that ended March 31, 2024, ET’s revenues increased 13.9% year-over-year to $21.63 billion. Its operating income grew 15.4% from the year-ago value to $2.38 billion. Its net income was $1.69 billion, up 16.9% from the previous year’s quarter. In addition, the company’s adjusted EBITDA increased 13% year-over-year to $3.88 billion.
Street expects ET’s revenue for the second quarter (ending June 2024) to increase 26.2% year-over-year to $23.13 billion. The company’s EPS for the ongoing quarter is expected to grow 37.9% year-over-year to $0.34. For the fiscal year 2024, the company’s revenue and EPS are expected to grow 15.9% and 34.2% year-over-year to $91.09 billion and $1.46.
ET’s stock has surged 12.8% over the past six months and 26.4% over the past year to close the last trading session at $15.67.
ET’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to a Buy in our proprietary rating system.
The stock has an A grade for Momentum. It also has a B grade for Value, Growth, and Stability. Within the B-rated Energy – Oil & Gas industry, ET is ranked #7 out of 79 stocks.
In addition to the POWR Ratings I’ve just highlighted, you can see ET’s ratings for Quality and Sentiment here.
Stock #2: VAALCO Energy, Inc. (EGY)
EGY is an independent energy company that engages in the acquisition, exploration, development, and production of crude oil, natural gas, and natural gas liquids in Gabon, Egypt, Equatorial Guinea, and Canada. The company holds 58.8% interest in the Etame commercial production.
On May 29, EGY drilled, completed, and brought into production four wells in Canada. All wells were 2.75-mile lateral development wells. It expects strong initial production rates of about 500 barrels of oil per day (BOPD) for three of the four wells, with nearly 350 BOPD production for the fourth well.
On April 30, EGY acquired the Svenska Petroleum Exploration AB, an exploration and production company based in Stockholm, Sweden. Svenska’s primary asset is a 27.39% non-operated working interest in the deepwater producing Baobab field in Block CI-40, offshore Cote d’Ivoire in West Africa. The net purchase price was $40.20 million fully funded by cash on hand.
The acquisition might enhance EGY’s diversified portfolio by building size and scale that allows it to generate significant free cash flow and execute its strategic vision. It strategically will expand the West African focus area with a sizeable producing asset with substantial upside potential and considerable future development opportunities.
For the first quarter that ended on March 31, 2024, EGY’s revenues increased 24.3% year-over-year to $100.16 million. Its operating income rose 48.9% from the year-ago value to $32.19 million. The company’s net income came in at $7.69 million and $0.07 per share, up 121.5% and 133.3% year-over-year, respectively.
In addition, the company’s adjusted EBITDAX of $61.74 million indicates growth of 29.1% from the prior year’s quarter.
Analysts expect EGY’s EPS for the second quarter (ending June 2024) to increase 18.2% year-over-year to $0.13, and its revenue is estimated to be $104.50 million in the same quarter. Moreover, the company surpassed the consensus revenue estimates in three of the four trailing quarters.
The stock has soared 37.2% over the past six months and 65.3% over the past year to close the last trading session at $6.38.
EGY’s promising outlook is reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
The stock has an A grade for Sentiment and a B for Growth, Quality, and Value. Within the B-rated Energy – Oil & Gas industry, EGY is ranked #4 out of 79 stocks.
Click here to access additional ratings of EGY for Momentum and Stability.
Stock #1: PrimeEnergy Resources Corporation (PNRG)
PNRG engages in the acquisition, development, and production of oil and natural gas properties. The company owns leasehold, mineral, and royalty interests in producing and non-producing oil and gas properties. It operates nearly 534 active wells and owns non-operating interests and royalties in 952 additional wells.
In terms of trailing-12-month EV/Sales, PNRG is trading at 1.44x, 36.3% lower than the industry average of 2.25x. Likewise, the stock’s trailing-12-month EV/EBITDA multiple of 2.80 is 56.6% lower than the industry average of 6.45. Also, its trailing-12-month Price/Sales of 1.45x is lower than the industry average of 1.54x.
PNRG’s trailing-12-month gross profit margin and EBIT margin of 62.09% and 26.51% are 39.5% and 35.5% higher than the respective industry averages of 44.50% and 19.56%, respectively. Similarly, the stock’s trailing-12-month net income margin of 26.44% is 129.5% higher than the industry average of 11.52%.
During the first quarter that ended March 31, 2024, PNRG’s revenues increased 88% year-over-year to $42.99 million. The company’s net income and EPS came in at $11.32 million and $4.41, indicating growth of 703% and 732% from the prior year’s quarter, respectively.
Furthermore, the company’s total assets stood at $332.90 million as of March 31, 2024, compared to $288.57 million as of December 31, 2023.
Shares of PNRG have surged 9.6% over the past month and 24.6% over the past year to close the last trading session at $114.
PNRG’s robust prospects are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
The stock has a B grade for Quality, Sentiment, and Growth. PNRG is ranked #3 out of 79 stocks in the same industry.
To access additional PNRG’s ratings for Value, Stability, and Momentum, click here.
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.
EOG shares fell $0.10 (-0.08%) in premarket trading Monday. Year-to-date, EOG has gained 4.41%, versus a 11.30% rise in the benchmark S&P 500 index during the same period.
About the Author: Rjkumari Saxena
Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.
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