The energy industry’s prospects look promising, given the increased global energy needs resulting from population growth, industrialization, economic development, and greater use of energy-intensive technologies. Despite the rapid transition to renewable energy sources, the outlook for traditional energy sources, such as oil and gas, remains strong.

Given this backdrop, it could be wise to add fundamentally strong energy stocks TotalEnergies SE (TTE), Plains All American Pipeline, L.P. (PAA), and Profire Energy, Inc. (PFIE) to one’s portfolio even if the trends in oil and gas prices don’t show promise.

Before diving deeper into the fundamentals of these stocks, let's discuss what’s shaping the energy industry’s prospects.

There have been concerns about tepid oil demand this year due to the expected decline in demand from China and a slowing global economy. In a bid to boost oil prices, voluntary production cuts were announced by OPEC+. However, this shortfall in production is being offset by the bump in production by non-OPEC nations.

In October 2023, the U.S. produced 13.248 million barrels per day (bpd). Moreover, forecasts for 2024 indicate a new production record, reaching 13.2 million barrels per day and growing to more than 13.4 million barrels per day in 2025.

Similarly, U.S. dry natural gas production is expected to increase between 1% and 2%, with prices averaging $2.70 per million British thermal units (MMBtu) in 2024 and reaching approximately $3.00/MMBtu in 2025. The expected U.S. dry natural gas production of 105 Bcf/d in 2024 and 106 Bcf/d in 2025 would both be records.

Despite the ongoing shift to cleaner energy sources, analysts anticipate significant long-term demand for oil and gas. Oil prices are expected to get a boost from the ongoing war in Israel, as there exists a possibility of the conflict spilling onto the Middle East region. A broader conflict could lead to supply disruptions as it is a major oil-producing region.

Iran’s recent air attacks on other countries have put the region on high alert. Furthermore, the attacks on cargo vessels by the Houthis on the Red Sea could boost oil prices in the near term due to fears of shipping disruptions and the anticipated rise in costs involved in taking the longer route. Moreover, the Fed’s expected interest rate cuts this year could boost economic growth and positively affect oil demand.

The IEA has forecast that global oil demand will rise by 1.2 million barrels per day this year compared to 2023. Also, OPEC expects oil demand to increase by 2.25 bpd this year and 1.8 million bpd next year.

The EIA projects a surge in U.S. power generation from renewables, increasing from 21% in 2021 to 44% in 2050. Despite the growth of renewables, oil is expected to remain the primary energy source, with JP Morgan projecting global demand to reach 106.9 mbd by 2030, a 5.5 mbd increase from 2023, indicating a positive long-term outlook despite the short-term challenges.

Moreover, given the reliance on oil, energy firms offering services in drilling, evaluation, production, and maintenance are poised for success. The global oilfield services market is anticipated to thrive and is projected to achieve a CAGR of 5.6%, reaching $421.31 billion by 2030.

Considering these conducive trends, let’s analyze the fundamentals of the featured energy stocks.

TotalEnergies SE (TTE)

Headquartered in Courbevoie, France, TTE is a multi-energy company that produces and markets fuels, natural gas, and electricity in France, the rest of Europe, North America, Africa, and internationally. It operates through Integrated Gas, Renewables & Power; Exploration & Production; Refining & Chemicals; and Marketing & Services segments.

On January 10, 2024, TTE announced the signing of an agreement to acquire an additional 10.5% participating interest in offshore block 2913B and 9.39% in block 2912 in Namibia from Impact Oil and Gas Namibia.

Following the completion of the transactions, subject to approvals, TotalEnergies would own 45.25% in block 2913B and 42.5% in block 2912, aiming to share this with strategic partner Qatar Energy, marking a significant step toward developing the Venus discovery and enhancing the partnership's value.

On January 8, 2024, TTE announced the Libra Consortium's final investment decision to deploy innovative subsea technology (HISEP) in the Mero field, Brazil, reducing emissions and enhancing production by separating oil and reinjecting CO2-rich gas at the ocean floor, a significant sustainability achievement.

In terms of forward non-GAAP P/E, TTE’s 6.60x is 31.7% lower than the 9.66x industry average. Its 0.81x forward EV/Sales is 58.3% lower than the 1.94x industry average. Likewise, its 4.71x forward EV/EBIT is 47.5% lower than the 8.97x industry average.

TTE’s revenue from sales for the fiscal third quarter ended September 30, 2023, came in at $54.41 billion. The company’s adjusted net income and net income per share came in at $6.5 billion and $2.63, respectively. Also, its adjusted EBITDA stood at $13.06 billion.

For the quarter ending June 30, 2024, TTE’s EPS is expected to increase 4.9% year-over-year to $2.09. Its revenue for fiscal 2024 is expected to increase marginally year-over-year to $220.16 billion. Over the past six months, the stock has gained 5.2% to close the last trading session at $63.26.

TTE’s POWR Ratings reflect strong prospects. It has an overall rating of B, which translates to a Buy in our proprietary system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It is ranked #9 out of 82 stocks in the Energy - Oil & Gas industry. It has a B grade for Stability and Quality. Click here to see TTE’s Growth, Value, Momentum, and Sentiment ratings.

Plains All American Pipeline, L.P. (PAA)

PAA and its subsidiaries engage in the pipeline transportation, terminalling, storage, and gathering of crude oil and natural gas liquids (NGL) in the United States and Canada. The company operates in two segments: Crude Oil and Natural Gas Liquids (NGL).

In terms of forward EV/Sales, PAA’s 0.50x is 74.3% lower than the 1.94x industry average. Its 0.23x forward Price/Sales is 83% lower than the 1.33x industry average. Likewise, its 1.39x forward Price/Book is 13.8% lower than the 1.61x industry average.

For the third quarter that ended on September 30, 2023, PAA’s revenues came in at $12.07 billion. Its adjusted net income attributable to PAA and adjusted net income per common unit stood at $279 million and $0.35, up 10% and 6.1% year-over-year, respectively. Moreover, the company’s adjusted EBITDA attributable to PAA rose 6.3% over the prior-year quarter to $662 million.

Analysts expect PAA’s EPS and revenue for the quarter ended December 31, 2023, to increase 2% and 2.5% year-over-year to $0.34 and $13.28 billion, respectively. It has surpassed Street EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 31.1% to close the last trading session at $15.91.

PAA’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.

It has a B grade for Growth, Value, and Momentum. It is ranked #8 out of 26 stocks in the A-rated MLPs - Oil & Gas industry. To see PAA’s Stability, Sentiment, and Quality ratings, click here.

Profire Energy, Inc. (PFIE)

PFIE provides burner and combustion management systems and solutions for natural and forced draft applications in the United States and Canada.

In terms of forward non-GAAP P/E, PFIE’s 8.05x is 16.6% lower than the 9.66x industry average. Its 1.06x forward EV/Sales is 45.5% lower than the 1.94x industry average. Likewise, its 5.76x forward EV/EBIT is 35.9% lower than the 8.97x industry average.

PFIE’s total revenues for the third quarter ended September 30, 2023, increased 15.6% year-over-year to $14.83 million. Its gross profit rose 22.2% over the prior-year quarter to $7.48 million. Its income from operations rose 20.1% year-over-year to $2.54 million.

For the same quarter, the company’s net income increased 68.4% year-over-year to $2.04 million. In addition, its EPS came in at $0.04, representing an increase of 100% year-over-year.

Street expects PFIE’s revenue for the quarter ended December 31, 2023, to increase 4.9% year-over-year to $14.65 million. Its EPS for fiscal 2023 is expected to increase 137.5% year-over-year to $0.19. It surpassed the consensus EPS estimates in each of the four trailing quarters. Over the past year, the stock has gained 39.1% to close the last trading session at $1.53.

PFIE’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system.

It has a B grade for Value and Quality. Within the Energy - Services industry, it is ranked #9 out of 52 stocks. In total, we rate PFIE on eight different levels. Beyond what we stated above, we also have given PFIE grades for Growth, Momentum, Stability, and Sentiment. Get all the PFIE ratings here.

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TTE shares were trading at $63.00 per share on Tuesday morning, down $0.26 (-0.41%). Year-to-date, TTE has declined -6.50%, versus a 1.65% rise in the benchmark S&P 500 index during the same period.

Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.

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