With the Federal Reserve’s balancing act living up to expectations, investing in Marathon Petroleum Corporation (MPC), Valero Energy Corporation (VLO), Halliburton Company (HAL), and NexTier Oilfield Solutions Inc. (NEX) could help capitalize on the energy sector tailwinds.
While the banking crisis has been contained for the time being by the joint effort of the Federal Reserve, the Treasury Department, the FDIC, and a few major banks, Jerome Powell has acknowledged that financial conditions have tightened more than expected in the wake of the crisis.
While the central bank hiked its benchmark rate by a quarter of a percentage point, its chief said that tighter financial conditions caused by more stringent lending decisions from banks could have a similar impact as further hikes from the Fed. Hence, projections suggest just one more rate hike on the cards for the rest of the year.
With the markets responding positively to the Fed’s softening stance, economic activity is expected to gain momentum. This could translate into higher demand for energy and a price rebound. Big Oil has responded proactively, with projects planned in Alaska and North Africa in anticipation of this surge in demand.
Hence, it could be wise to capitalize on energy stocks likely to have momentum in their favor in the foreseeable future.
Let’s take a closer look at the featured stocks.
Marathon Petroleum Corporation (MPC)
MPC is involved in midstream and downstream businesses, such as petroleum product refining, marketing, and retail in the United States. The company operates through two segments: Refining & Marketing and Midstream transport.
On March 10, MPC paid its quarterly dividend of $0.75 per share of common stock. The company pays $3.00 annually as dividends, which translates to a forward yield of 2.36% at the current price. Dividend payouts have grown at a 10.4% CAGR over the past five years.
In addition to paying out $1.3 billion as dividends, MPC returned another $11.9 billion of capital to shareholders in 2022 through share repurchases. This brought the total repurchases to almost $17 billion since May 2021. In addition, the company also announced an incremental share repurchase authorization of $5 billion. As a result, the company has $7.6 billion in remaining repurchase authorization.
On March 8, MPC announced the acquisition of a 49.9% interest in LF Bioenergy, an emerging renewable natural gas (RNG) producer in the United States, from Cresta Fund Management for $50 million. The agreement includes the potential for up to an additional $50 million based on achieving predetermined earn-out targets.
This transaction demonstrates the company’s commitment to low-carbon investments.
For the fiscal year ended December 31, 2022, MPC’s total revenues and other income increased 48.8% year-over-year to $179.95 billion, while its adjusted EBITDA from continuing operations increased 171.7% year-over-year to $24.34 billion due to improving operational and commercial execution as the refining system operated at 96% utilization to meet demand.
As a result, adjusted net income attributable to MPC came in at $13.50 billion or $26.16 per share, compared to $1.56 billion or $2.45 per share in the previous fiscal year.
Analysts expect MPC’s EPS for the first quarter of the fiscal year 2023 to come in at $5.50, compared to $1.45 in the year-ago period. Moreover, the company has surpassed its consensus EPS estimates in each of the trailing four quarters.
MPC’s stock has gained 3.5% over the past month and 38.9% over the past six months to close the last trading session at $128.75, above its 50-day and 200-day moving averages of $125.47 and $108.74, respectively.
MPC’s fundamental strength is reflected in its overall A rating, which translates to a Strong Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
MPC also has an A grade for Quality and Momentum and a B for Growth and Sentiment.
Unsurprisingly, MPC tops the list of 90 stocks in the B-rated Energy – Oil & Gas industry.
Click here for additional POWR Ratings for MPC’s Value and Stability.
Valero Energy Corporation (VLO)
VLO is involved in manufacturing, marketing, and selling transportation fuels and petrochemical products in domestic and international markets. It operates in three segments: Refining; Renewable Diesel; and Ethanol. Its offerings include conventional, premium, and reformulated gasoline; California Air Resources Board (CARB) gasoline and diesel; and other refined petroleum products.
On March 16, VLO paid an increased quarterly cash dividend of $1.02 per share on common stock. The quarterly cash dividend was previously $0.98 per share.
With this increase, the annualized cash dividend rate on VLO’s common stock has been raised to $4.08 per share. This translates to a yield of 3.10% at the current price. Over the past five years, the company has increased its dividend payouts at a 6.4% CAGR.
On January 31, VLO and Darling Ingredients Inc (DAR) announced their investment decision on a Sustainable Aviation Fuel (SAF) project at the DGD Port Arthur plant, owned and operated by Diamond Green Diesel Holdings LLC, a 50/50 joint venture between VLO and DAR.
With an estimated cost of $315 million, with half the amount attributable to VLO, the project is expected to be complete by 2035. After that, the DGD Port Arthur plant will be able to upgrade approximately 50 percent of its current 470 million gallons annual production capacity to SAF, which is expected to make it one of the largest SAF manufacturers in the world.
VLO’s revenues increased 16.3% year-over-year to $41.75 billion in the fiscal 2022 fourth quarter ended December 31, 2022. During the same period, the company’s operating income improved 169.4% year-over-year to $4.30 billion, while its adjusted net income amounted to $3.2 billion, up 223.9% year-over-year.
The company’s adjusted quarterly earnings per share came in at $8.45, registering an increase of 250.6% from the prior-year period.
Analysts expect VLO’s revenue for the first quarter of fiscal 2023 to come in at $37.42 billion. For the same period, the company’s EPS is expected to increase by 182.7% year-over-year to $6.53. VLO has also impressed by topping the consensus estimates in each of the trailing four quarters.
VLO’s stock has gained 22.5% over the past six months and 40.8% over the past year to close the last trading session at $133.48, above its 200-day moving average of $122.78.
VLO has an overall B rating, which translates to a Buy in our POWR Ratings system. It has an A grade for Momentum and a B for Growth, Value, and Quality.
VLO is ranked #4 of 90 stocks in the B-rated Energy – Oil & Gas industry.
Click here for additional POWR Ratings for Stability and Sentiment of VLO.
Halliburton Company (HAL)
HAL offers production enhancement services, production solutions, drilling services, pipeline and process services, wireline and perforating services, and digital services to the energy industry. The company operates through two segments, Completion and Production; and Drilling and Evaluation.
On March 22, HAL announced that Hess Corporation (HES) selected its Well Construction Suite to plan, design, and construct safe, cost-effective, and productive wells. The applications would provide operators with real-time and efficient collaboration with oilfield service providers and drilling contractors.
On January 24, HAL’s Board of Directors announced a 33% increase in its quarterly dividend to $0.16 per share beginning the first quarter of fiscal 2023. The dividend would be payable on March 29, 2023, to shareholders of record at the close of business on March 1, 2023.
HAL pays a $0.64 per share dividend annually, which translates to a forward yield of 2.10% on the current price, comparable to its four-year average dividend yield of 2.38%.
On November 29, 2022, HAL installed the industry’s first downhole electro-hydraulic wet-connect deepwater for Petrobras in Brazil. This is a significant achievement in downhole electric completion technology which would help increase well recovery factors by maintaining the integrity of completion systems throughout the well’s lifecycle.
This would further help in facilitating safer and simpler intervention operations and avoid potential formation damage because of workover operations.
For the fiscal fourth quarter that ended December 31, 2022, HAL’s revenue increased 30.5% year-over-year to $5.58 billion. The company’s operating income grew 77.5% from the prior-year period to $976 million. Adjusted net income attributable to the company rose 105% year-over-year to $656 million, while adjusted net income per share came in at $0.72, up 100% year-over-year.
Analysts expect HAL’s revenue and EPS for the current fiscal year (ending December 2023) to increase by 16.1% and 42.1% year-over-year to $23.56 billion and $3.05, respectively. Both metrics are expected to keep growing over the next two fiscals. Moreover, the company has impressed by surpassing the consensus EPS estimates in each of the trailing four quarters.
The stock has gained 13.2% over the past six months to close the last trading session at $30.46.
HAL’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. It has an A grade for Momentum and a B for Growth and Sentiment.
HAL is ranked #16 of 43 stocks in the B-rated Energy-Services industry.
Beyond what we stated above, additional ratings for HAL’s Value, Quality, and Stability are available here.
NexTier Oilfield Solutions Inc. (NEX)
NEX provides diverse oil completion and production services across various land oilfield basins across the United States. The company operates through two segments: Completion Services; and Well Construction and Intervention Services.
On September 1, 2022, NEX and Seneca Resources Company, LLC (the Exploration and Production segment of National Fuel Gas Company (NFG) announced an agreement to deploy the first electric Emerald™ fracturing system, a fully integrated electric fracturing fleet commencing in the first quarter of the calendar year 2023.
Under this multi-year agreement, operations are designed to deliver optimal fracturing performance while decreasing emissions, lowering fuel costs, and reducing the equipment footprint.
For the fiscal year ended December 31, 2022, NEX’s revenue increased 128% year-over-year to $3.25 billion, while its adjusted EBITDA came in at $656.83 million, compared to $113.96 million during the previous fiscal year. The company’s adjusted net income for the fiscal year came in at $394.63 million, or $1.58 per share, compared to a loss of $96.50 million or $0.43 per share during the previous fiscal year.
NEX’s total assets stood at $1.73 billion as of December 31, 2022, compared to $1.46 billion as of December 31, 2021.
Analysts expect NEX’s revenue and EPS for the current fiscal year to increase 19.5% and 59.2% year-over-year to $3.88 billion and $2.52, respectively. It has also impressed by surpassing consensus EPS estimates in each of the trailing four quarters.
The stock has dipped 5.6% over the past six months to close the last trading session at $7.53.
NEX’s fundamental strength 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. It also has an A grade for Growth and Momentum and a B for Value and Quality.
NEX is ranked #3 of 43 stocks in the B-rated Energy - Services industry. Click here for additional ratings for NEX’s Stability and Sentiment.
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MPC shares were trading at $125.36 per share on Thursday afternoon, down $1.62 (-1.28%). Year-to-date, MPC has gained 8.34%, versus a 2.78% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
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