In the context of growing demand for oil and gas, worsening geopolitical landscape, supply constraints and rising oil prices, the energy sector is poised to witness stable growth in the near term. Against this backdrop, quality energy stocks Marathon Petroleum Corporation (MPC), DNOW Inc. (DNOW) and Matrix Service Company (MTRX) could be solid buys now. Continue reading….
In an environment of growing demand and limited supply, the oil and gas industry is expected to show resilience to rising oil prices. Against this backdrop, fundamentally sound energy stocks Marathon Petroleum Corporation (MPC), DNOW Inc. (DNORA) and Matrix Service Company (MTRX) might be wise portfolio additions now.
Oil prices have recently increased, with Brent crude oil rose above $87 on Monday, amid Russia’s retaliatory attacks on Ukraine and the Russian government’s energy facilities orders to limit oil productionand the failure of mediation in the Israel-Gaza conflicts. Furthermore, analysts expect a reduction in supply in the context of OPEC+ extensive production cuts.
In a context of projections of supply constraints, strong growth in global oil demand for 2024 and 2025 could further increase oil and gas prices in the future. OPEC forecasts that oil demand could increase by 2.25 million barrels per day in 2024 and 1.85 million barrels per day in 2025, and global economic growth, which could support oil demand, is forecast at 2.8% in 2024 and 2.9% in 2025. Morgan Stanley has raised its forecast for the price of Brent oil from $10 a barrel to $90 for the fiscal third quarter of 2024.
Additionally, energy stocks have outperformed the broader market in 2024, as highlighted by the Energy Select Sector SPDR Fund (XLE) Gain of 11.2%, compared to the SPDR S&P 500 ETF Trust (TO SPY) Earnings of 9.7% over the same period.
With these favorable trends in mind, let’s analyze the fundamentals of the three energy stock picks.
Marathon Petroleum Corporation (MPC)
MPC operates as an integrated downstream energy company primarily in the United States through its Refining & Marketing and Midstream segments.
On March 11, MPC paid shareholders a dividend of $0.83 per share on its common stock. The company pays an annual dividend of $3.30 per share, which translates to a dividend yield of 1.65% on the current share price. Its four-year average return is 3.62%. Over the past three and five years, MPC’s dividend payments have grown at a CAGR of 10.7% and 10.5%, respectively.
Additionally, in the fourth quarter ended December 31, 2023, the company returned approximately $2.80 billion in capital to shareholders through share repurchases of $2.50 billion and $311 million of dividends. Through January 26, the company has repurchased an additional $0.90 billion in company stock. The company currently has approximately $5.90 billion available under share repurchase authorizations.
MPC’s cash from operations over the trailing 12 months of $14.12 billion is significantly higher than the industry average of $669.37 million. Trailing 12-month ROCE, ROTC and ROTA of 37.12%, 13.88% and 11.26% are 109.9%, 66.8% and 71.4% higher than industry averages 17.68%, 8.32% and 6.57% respectively.
For the fiscal fourth quarter ended December 31, 2023, MPC’s total revenue, other income and earnings from continuing operations stood at $36.82 billion and $2.40 billion, respectively.
Additionally, its adjusted EBITDA from continuing operations amounted to $3.53 billion. For the same quarter, adjusted net income attributable to MPC and adjusted earnings per share came in at $1.51 billion and $3.98, respectively.
Street expects MPC’s revenue and EPS for the fiscal first quarter ended March 2024 to be $33.06 billion and $2.11, respectively. The company has 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 79% over the past nine months to close the latest trading session at $199.83. In the last year it has gained 60.3%.
MPC’s strong fundamentals are reflected in its own POWR Ratings. The stock has an overall rating of B, equivalent to Buy in our proprietary rating system. POWR Ratings are calculated by considering 118 distinct factors, each optimally weighted.
The stock has a grade of B for Momentum, Sentiment, and Quality. Inside the Energy: oil and gas sector, is in 5th place out of 83 titles.
To view additional POWR Ratings for Growth, Value and Stability for MPC, Click here.
DNOW Inc. (DNORA)
DNOW distributes downstream energy and industrial products for petroleum refining, chemical processing, LNG terminals, power generation services and industrial manufacturing operations in the United States, Canada and internationally. It operates under the DistributionNOW and DNOW brands.
On March 12, DNOW completed the cash acquisition of Whitco Supply, LLC, following completion of the regulatory approval process and other customary closing conditions. The acquisition enhances DNOW’s capabilities and position in the targeted midstream, E&P and adjacent markets that have been critical to the company’s growth strategy, while increasing the company’s earnings and flow capacity. cash available. The deployment of capital strategically aligns with and reinforces the company’s commitment to increasing long-term value for its shareholders and stakeholders.
DNOW’s trailing 12-month asset turnover ratio of 1.63x is 105.1% higher than the industry average of 0.79x. Trailing 12-month ROCE, ROTC and ROTA of 25.55%, 9.10% and 16.15% are 111.3%, 29.7% and 233.3% higher than industry averages respectively by 12.09%, 7.02% and 4.85%.
For the fiscal fourth quarter ended December 31, 2023, DNOW’s revenue increased 1.5% year over year to $555 million, while its operating profit stood at $32 million. Additionally, its non-GAAP EBITDA excluding other costs was $44 million.
For the same quarter, non-GAAP net income attributable to DNOW excluding other costs and non-GAAP earnings per share attributable to DNOW shareholders excluding other costs came in at $24 million and $0.22, respectively.
Street expects DNOW’s revenue and EPS for the fiscal year ending December 2024 to increase 2.8% and 6.4% year-over-year to $2.39 billion and $1.03, respectively. The company has surpassed consensus estimates for revenue and EPS in three of the trailing four quarters.
The stock gained 45.9% over the past nine months to close the latest trading session at $15.13. In the last year it has gained 42.9%.
DNOW’s strong outlook is reflected in its POWR Ratings. The stock has an overall rating of B, equivalent to Buy in our proprietary rating system.
DNOW has a grade of A for Value and Momentum and a B for Quality. Inside the Energy – Services sector, is in 4th place out of 50 stocks.
In addition to the above, we also evaluated the stock in terms of growth, stability and sentiment. Get all DNOW ratings Here.
Matrix Services Company (MTRX)
MTRX designs, manufactures, builds and provides maintenance services to support critical energy infrastructure and industrial markets in the United States, Canada and internationally. It operates through three segments: Electric Utilities & Infrastructure; Process and industrial plants; and storage and terminal solutions.
On March 19, due to significant demand across Europe for infrastructure to support sustainable energy resources, MTRX subsidiary Matrix PDM Engineering signed a Memorandum of Understanding with Engicon nv (Geldof), based in Harelbeke, Belgium, enabling the team to jointly provide total engineering, procurement and construction solutions for ammonia storage across Europe.
MTRX’s relationship with Geldof offers customers across Europe world-class storage and terminal solutions for ammonia, which is also used as a hydrogen carrier, and further strengthens their partnership offerings in technology and construction to meet the growing global demand for more sustainable energy resources.
MTRX’s trailing 12-month asset turnover ratio of 1.82x is 128.6% higher than the industry average of 0.79x.
For the fiscal second quarter ended December 31, 2023, MTRX’s revenues were $175.04 million. Additionally, its gross profit came in at $10.59 million, compared to a gross loss of $1.30 million in the year-ago quarter.
As of December 31, 2023, MTRX’s total current assets and debts were $267.31 million and $61.89 million, compared to $262.26 million and $76.37 million, respectively, as of June 30 2023.
Street expects MTRX’s revenue for the fiscal third quarter ending March 2024 to increase 4.5% year-over-year to $195.29 million.
The stock has gained 171% over the past year, closing the latest trading session at $13.09. In the last nine months it has gained 135.4%.
MTRX’s POWR ratings reflect its positive outlook. The stock has an overall rating of B, equivalent to Buy in our proprietary rating system.
MTRX has a grade of B for growth, momentum and sentiment. In the Energy – Services sector, it is in 5th place.
Click here for additional POWR ratings for MTRX (value, stability and quality).
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MPC shares rose $0.09 (+0.05%) in premarket trading Tuesday. Year to date, MPC has gained 35.35%, compared to a 9.69% gain in the benchmark S&P 500 index over the same period.
About the author: Neha Panjwani
Since her school days, Neha had a deep fascination for finance, a passion that pushed her towards a career as an investment analyst after completing her bachelor’s degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her understanding of investment fundamentals. Neha’s primary focus is to help retail investors identify optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a focus on stocks and ETFs. She is committed to empowering people to make informed and strategic investment decisions in the dynamic world of finance.
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