The energy sector appears highly promising, driven by a significant surge in oil prices, constrained supply, and robust demand from emerging economies. These factors converge to create substantial opportunities for companies operating within this space.
Given the current market conditions, it could be an opportune time to load up the shares of four energy companies Valero Energy Corporation (VLO), Par Pacific Holdings, Inc. (PARR), Unit Corporation (UNTC), and Amplify Energy Corp. (AMPY), which are trading at a discount relative to their peers. These stocks are B (Buy) rated in our POWR Ratings system.
According to projections, oil prices are expected to climb to $86 per barrel by the year-end, up from the current level of $80. This price surge is a result of a combination of factors, including record-breaking oil demand and decreased supply, leading to a substantial market deficit.
Daan Struyven, head of oil research at Goldman Sachs, foresees significant deficits in the year's second half, with an estimated shortage of nearly 2 million barrels per day (bpd) during the third quarter. These deficits are expected to be fueled by a surge in demand, which is expected to reach an all-time high.
Additionally, according to Joseph McMonigle, the Secretary General of the International Energy Forum (IEF), the surge in oil prices in the second half of the year could be attributed to the rising demand from emerging economies like China and India, which together may incur 2 million bpd.
Although the demand for oil is robust, the supply side is struggling to catch up, fueled by factors such as the Organization of the Petroleum Exporting Countries (OPEC+) choosing to voluntarily reduce their oil production by a total of 1.66 million bpd until the end of 2024.
Furthermore, significant members of the coalition, Saudi Arabia and Russia, have recently announced additional voluntary cuts for July and August. These adjustments will amount to a decrease of 1 million bpd in output by Saudi Arabia and a reduction of 500,000 bpd in exports by Russia.
Keeping all the factors in mind, let us delve into the fundamentals of the featured stocks in detail:
Valero Energy Corporation (VLO)
VLO manufactures, markets, and sells transportation fuels and petrochemical products worldwide. It operates through three segments: Refining; Renewable Diesel; and Ethanol. The company produces CARB diesel, diesel, jet fuel, asphalt, aromatics, and sulfur crude oils.
On July 20, VLO declared a regular quarterly dividend of $1.02 per share, payable to its shareholders on September 5, 2023.
The company’s annual dividend of $4.08 translates to a 3.32% yield on the prevailing prices, while its four-year average dividend yield is 4.93%. Its dividend payouts have grown at CAGRs of 2.1% and 5.9% over the past three and five years, respectively.
On January 31, VLO and Darling Ingredients Inc. jointly announced their final investment decision on a Sustainable Aviation Fuel (SAF) project at the DGD Port Arthur plant, which is operated by Diamond Green Diesel Holdings LLC, a 50/50 joint venture between VLO and Darling.
Upon its completion by 2025, the project will upgrade around 50% of the plant's current 470-million-gallon annual production capacity to produce SAF. As a result, DGD is expected to become one of the world's leading manufacturers of SAF.
In terms of forward non-GAAP P/E, VLO is trading at 5.67x, 41.8% lower than the industry average of 9.74x. Its forward EV/Sales multiple of 0.37 is 81.6% lower than the industry average of 2.02x. Also, its forward EV/EBIT ratio of 4.90 is 43.8% lower than the industry average of 8.73.
For the first quarter, which ended March 31, 2023, VLO’s revenue amounted to $34.44 billion, while its operating income rose 192.1% from the year-ago value to $4.04 billion. The company’s net income increased 225.3% from the prior-year quarter to $3.15 billion. Also, its EPS came in at $8.29, up 275.1% year-over-year.
Street expects VLO’s revenue and EPS for the second quarter (ended June 30, 2023) to be $35.57 billion and $5.08, respectively. Moreover, the company has an excellent earnings surprise history, surpassing the EPS estimates in each of its trailing four quarters.
The stock has gained 20.9% over the past year to close the last trading session at $124.82.
VLO’s POWR Ratings reflect this robust outlook. The stock has an overall B rating, translating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Quality and a B for Value and Momentum. In the 89-stock Energy - Oil & Gas industry, it is ranked #4. Click here to see VLO’s ratings for Growth, Stability, and Sentiment.
Par Pacific Holdings, Inc. (PARR)
PARR owns and operates energy and infrastructure businesses. The company operates through three segments: Refining; Retail; and Logistics. It operates three refineries that produce ultra-low sulfur diesel, gasoline, jet fuel, etc. In addition, it owns and operates terminals, pipelines, single-point mooring, and trucking operations to distribute refined products.
On June 1, PARR acquired the Billings refinery and related marketing and logistics assets and related marketing and logistics assets from Exxon Mobil Corporation (XOM) and two of its subsidiaries.
William Pate, the Chief Executive Officer of PARR, highlighted that this acquisition brings significant scale and geographic diversification benefits. He also emphasized that the company anticipates the transaction to positively impact its earnings and cash flow.
On April 27, PARR revealed its intentions to invest around $90 million in establishing the largest liquid renewable fuels manufacturing facility in Hawaii, to be located at its Kapolei refinery. The project capitalizes on the expertise of the Kapolei refinery's experienced operating team, existing tank storage, and related logistics.
With an estimated cost of less than $1.50 per gallon of annual operating capacity, the project is set to be commissioned in 2025. The facility will be capable of producing up to 60% sustainable aviation fuel, marking a significant step towards decarbonizing Hawaii's substantial air travel market.
PARR’s forward non-GAAP P/E of 5.56x is 42.9% lower than the 9.74x industry average. Its forward EV/Sales multiple of 0.28 is 86.2% lower than the industry average of 2.02x. Also, its forward Price/Book ratio of 1.77 is 15.1% lower than the industry average of 1.54x.
In the first quarter that ended March 31, 2023, PARR’s revenue increased 24.8% year-over-year to $1.68 billion, while its total operating expenses declined 3.2% from the year-ago value to $1.42 billion.
The company’s net income amounted to $237.89 million and $3.90 per share versus a net loss of $137.05 million and $2.31 per share, respectively, in the same period last year. In addition, its adjusted EBITDA improved significantly from the prior-year quarter to $167.64 million.
Analysts expect PARR’s revenue and EPS for the second quarter (ended June 30, 2023) to be $1.61 billion and $1.22, respectively. Additionally, the company surpassed the revenue estimates in each of the trailing four quarters and EPS estimates in three of the trailing four quarters, which is promising.
Over the past year, the stock has gained 105.8% to close the last trading session at $30.18.
PARR’s POWR Ratings reflect this solid outlook. The stock has an overall B rating, which translates to Buy in our proprietary rating system.
It has a B grade for Value, Momentum, and Quality. In the same industry, it is ranked #15. To see additional POWR Ratings of PARR for Growth, Stability, and Sentiment, click here.
Unit Corporation (UNTC)
UNTC engages in the exploration, acquisition, development, and production of oil and natural gas properties in the United States. It operates through three segments: Oil and Natural Gas; Contract Drilling; and Mid-Stream.
On June 26, UNTC paid its shareholders a quarterly dividend of $2.50 per share. The company’s annual dividend translates to a 21.27% yield on the prevailing prices, while its four-year average dividend yield is 4.50%.
UNTC’s trailing-12-month EV/Sales multiple of 0.64x is 62.7% lower than the 1.73x industry average. Its trailing -12-month EV/EBITDA multiple of 1.16 is 76.6% lower than the industry average of 4.95x. Additionally, its trailing-12-month EV/EBIT ratio of 1.25 is 82.3% lower than the industry average of 7.08x.
UNTC’s total revenues for the first quarter (ended March 31, 2023) amounted to $93.93 million, while its total operating costs declined 60.7% year-over-year to $44.04 million.
The company’s net income stood at $134.65 million and $13.75 per share compared to a net loss of $52.71 million and $4.66 per share, respectively, in the same period last year. Also, its income from operations came in at $44.67 million.
In addition, its EPS is projected to improve by 44% per annum over the next five years. UNTC’s shares have gained 7.3% over the past three months to close the last trading session at $47.
UNTC’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It has an A grade for Value and Quality. Within the same industry, it is ranked #3. Click here to see the other ratings of UNTC for Growth, Momentum, Stability, and Sentiment.
Amplify Energy Corp. (AMPY)
AMPY engages in the acquisition, development, exploitation, and production of oil and natural gas properties. The company's properties consist of operated and non-operated working interests in producing and undeveloped leasehold acreage, as well as working interests in identified producing wells.
In terms of forward non-GAAP P/E, AMPY is trading at 6.41x, 34.2% lower than the industry average of 9.74x. Its forward EV/Sales multiple of 1.24 is 38.6% lower than the industry average of 2.02x. Also, its forward Price/Cash Flow ratio of 3.58x is 22.3% lower than the industry average of 4.61x.
AMPY’s total revenue for the first quarter (ended March 31, 2023) came in at $79.87 million. Its total costs and expenses declined 17.1% quarter-over-quarter to $53.26 million.
The company’s net income and EPS rose significantly from the prior-quarter value to $352.76 million and $8.69, respectively. While its adjusted EBITDA grew 17.9% sequentially to $25.81 million.
For the second quarter (ended June 30, 2023), AMPY’s revenue is expected to be $78.21 million, while its EPS is expected to be $0.28 for the same period and is further projected to increase by 15% per annum over the next five years. Moreover, the company surpassed the EPS and revenue estimates in each of the trailing four quarters, which is impressive.
Over the past year, AMPY’s shares have gained 19.5% to close the last trading session at $6.93.
It’s no surprise that AMPY has an overall rating of B, which equates to Buy in our proprietary rating system. It has an A grade for Value and Sentiment and a B for Quality. Out of 89 stocks in the same industry, it is ranked #13.
In addition to the POWR Ratings we’ve stated above, we also have AMPY’s ratings for Growth, Momentum, and Stability. Get all AMPY ratings here.
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VLO shares were trading at $125.96 per share on Tuesday afternoon, up $0.25 (+0.20%). Year-to-date, VLO has gained 0.94%, versus a 19.97% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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