The reopening of the Chinese economy has triggered oil demand. In addition, a tight oil supply could push oil and gas prices up, which could consequently bode well for the energy sector. Against this backdrop, let us explore oil stocks Cheniere Energy Partners, L.P. (CQP) and CrossAmerica Partners LP (CAPL).
Macroeconomic headwinds and geopolitical turmoil shook almost the entire economy last year. However, the energy sector flourished, driven by high oil and gas prices. The Energy Select Sector SPDR Fund (XLE) has gained 5.7% over the past year, while the broader SPDR S&P 500 ETF Trust (SPY) plummeted 12.2% over the same period.
The year 2023 started with a state of euphoria on the backs of raised investor optimism. However, the positive sentiments were gradually engulfed by recessionary concerns amid macroeconomic uncertainties and banking failures. Despite such turmoil, it is anticipated that the oil and gas demand could boost in the upcoming months, thanks to the reopening of the Chinese economy.
According to OPEC’s latest estimate, China’s oil demand is expected to average 15.56 million barrels per day (bpd) in 2023, up by 710,000 bpd compared to last year, which has the potential to bolster oil prices this year.
In addition, as per the International Energy Agency (IEA), the supply overhang in 2023 could turn into a deficit in the latter part of the year amid increased demand from China.
Moreover, natural gas prices are set to go up from the February lows due to soaring demand from the Freeport LNG export facility reopening, seasonal increases in demand in the electric power sector, and relatively flat U.S. gas production for the rest of 2023.
Furthermore, Russia’s decision to continue a 500,000 bpd oil production cut and record-high U.S. oil exports to Europe will likely keep the prices up.
Therefore, to capitalize on the current oil market dynamics, quality oil stocks CQP and CAPL might be wise portfolio additions now.
Cheniere Energy Partners, L.P. (CQP)
CQP provides Liquefied Natural Gas (LNG) to integrated energy companies, utilities, and energy trading companies worldwide. Its regasification facilities have approximately 17 billion cubic feet of LNG storage space, along with a 94-mile pipeline that interconnects the Sabine Pass LNG terminal with various interstate pipelines.
On January 27, CQP announced a cash distribution of $1.07 per common unit, comprising a base amount equal to $0.775 and a variable amount equal to $0.295, paid to unitholders on February 14, 2023.
Its annual dividend of $3.10 per share translates to a 6.56% yield on prevailing prices. Its four-year average dividend yield is 6.61%. The company’s dividend payouts have increased at an 8% CAGR over the past three years and 11.6% CAGR over the past five years. This reflects its cash generation ability.
CQP’s trailing-12-month ROTA of 12.72% is 62.9% higher than the 7.81% industry average. Likewise, the stock’s trailing-12-month levered FCF margin of 14.37% is 113.1% higher than the industry average of 6.74%.
CQP’s total revenues have increased 44.9% year-over-year to $4.72 billion in the fiscal fourth quarter that ended December 31, 2022. Its total operating costs and expenses declined 22.8% from the year-ago quarter to $1.96 billion.
Moreover, its net income and net income per share came in at $2.51 billion and $4.63, up 396.2% and 397.8% year-over-year, respectively. Its adjusted EBITDA stood at $1.59 billion, up 83.3% year-over-year during the same quarter.
CQP’s EPS and revenue for the fiscal year ending December 2023 are expected to come at $5.12 and $11.53 billion, respectively. Moreover, CQP topped consensus EPS and revenue estimates in each of the trailing four quarters, which is impressive.
The stock has gained 7.4% over the past five days and marginally intraday to close its last trading session at $47.25.
CQP’s POWR Ratings reflect its fundamental strength. The stock 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.
CQP has a B grade for Momentum, Stability, and Quality. In the 31-stock A-rated MLPs – Oil & Gas industry, it is ranked #2.
Click here for additional CQP grades for Growth, Value, and Sentiment.
CrossAmerica Partners LP (CAPL)
CAPL engages in the wholesale distribution of motor fuels, operation of convenience stores, and ownership and leasing of real estate used in the retail distribution of motor fuels worldwide. It operates in two segments, Wholesale and Retail.
On January 19, CAPL announced a quarterly distribution of $0.5250 per unit, paid to all unitholders on February 10. Its annual dividend of $2.10 per share translates to a 10.07% yield on the current price. Its four-year average dividend yield is 11.91%. This reflects its shareholder return ability.
CAPL’s trailing-12-month ROCE of 113.15% is 427.6% higher than the 21.44% industry average. Likewise, the stock’s 3.72x trailing-12-month asset turnover ratio is 453.5% higher than the 0.67x industry average.
For the fiscal fourth quarter that ended December 31, 2022, CAPL’s operating revenues increased 4.4% year-over-year to $1.12 billion. The company’s net income available to partners increased 37.7% year-over-year to $16.50 million. In addition, its adjusted EBITDA increased 19.7% year-over-year to $44.28 million, while its EPS came in at $0.43, representing a 34.4% increase from the prior-year quarter.
CAPL’s EPS and revenue for the fiscal year ending December 2023 are expected to come in at $0.89 and $4.53 billion, respectively. It also topped the consensus revenue estimates in each of the trailing four quarters.
Over the past six months, the stock has gained 11.8% to close the last trading session at $20.86. It has also gained 4.2% over the past three months.
CAPL’s solid prospects are reflected in its POWR ratings. The company has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It has an A grade for Momentum and Sentiment and a B for Stability. It is ranked first within the same industry.
Beyond what we have mentioned above, for other ratings of CAPL for Growth, Value, and Quality, click here.
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CQP shares were trading at $47.16 per share on Thursday morning, down $0.09 (-0.19%). Year-to-date, CQP has declined -15.41%, versus a 5.91% 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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