The energy sector prospects appear promising due to increased geopolitical tensions worldwide and rising oil and gas needs in growing economies for energy, transport, industry, and infrastructure. Anticipated extension of output cuts and a rebound in global demand for crude oil, especially in China, add to this positive outlook.
Amid this backdrop, investors could consider buying fundamentally strong energy stocks Transportadora de Gas del Sur S.A. (TGS), MRC Global Inc. (MRC), and NGL Energy Partners LP (NGL).
Geopolitical tensions in the Middle East, OPEC+’s extension of supply cuts into the second quarter, and Ukraine's drone attacks on Russian oil refineries caused oil prices to rise last month. However, oil prices have fallen since then due to rising U.S. oil inventories and concerns over sluggish oil demand.
However, the chances of tensions escalating in the Middle East, the possibility of OPEC+ extending production cuts for another three months, export cuts in Mexico, and a decline in Russian oil exports could trigger an oil supply squeeze. Moreover, China, the world’s largest oil importer, shows signs of a demand revival as its oil imports rose 5.5% in April over the past year.
Notably, the World Bank forecasts that oil prices could average $102 per barrel if a major conflict involving oil-producing nations erupts in the Middle East. OPEC anticipates an impressive 2.25 million bpd increase in world oil demand this year and a 1.85 million bpd increase in 2025. Additionally, global natural gas demand is expected to grow between 10% and 15% until 2035.
The potential increase in oil demand could benefit companies engaged in drilling, evaluation, production, and maintenance services. Likewise, the global oilfield services market is projected to expand at a CAGR of 6.5%, reaching $175.03 billion by 2031. Investors’ interest in energy stocks is evident from the Vanguard Energy Index Fund ETF Shares’ (VDE) 19.3% returns over the past year.
Considering these conducive trends, let’s analyze the fundamental aspects of the featured energy stocks.
Transportadora de Gas del Sur S.A. (TGS)
Headquartered in Buenos Aires, Argentina, TGS transports natural gas and produces and commercializes natural gas liquids in Argentina and internationally. The company operates through four segments: Natural Gas Transportation Services, Liquids Production and Commercialization, Midstream, and Telecommunications.
On May 6, 2024, TGS announced winning a six-month-plus Ocean Bottom Node (OBN) data acquisition contract in North America from a returning client, showcasing their commitment to top-notch seismic data solutions and bolstering their market position. This project aims to enhance the client's seismic data capabilities for informed decision-making.
On April 24, 2024, TGS announced a strategic partnership with MAPSearch to integrate premier pipeline data with their Well Data Analytics platform, enhancing decision-making for geologists and engineers.
This collaboration enables direct access to MAPSearch pipeline data within TGS' platform, supporting functions like merger analysis, project planning, and investment evaluation across the energy spectrum.
In terms of forward non-GAAP P/E, TGS’ 6.38x is 42.6% lower than the 11.11x industry average. Similarly, its 7.60x forward EV/EBIT is 20.2% lower than the 9.53x industry average.
TGS’ operating revenue for the fiscal first quarter that ended on March 31, 2024, amounted to $152.11 million. Its total operating expense decreased 10.2% year-over-year to $161.55 million. In addition, as of March 31, 2024, its total current assets amounted to $508.93 million, compared to $442.94 million as of December 31, 2023.
For fiscal 2024, TGS’ revenue and EPS are expected to increase 59.9% and 254.1% year-over-year to $1.27 billion and $3.01, respectively. The company surpassed consensus EPS estimates in three of the trailing four quarters. Over the past six months, the stock has gained 91.4% to close the last trading session at $19.20.
TGS’ POWR Ratings reflect its solid prospects. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #9 out of 41 stocks in the A-rated Foreign Oil & Gas industry. It has an A grade for Momentum and a B for Stability, Sentiment, and Quality. Click here to see the other TGS ratings for Growth and Value.
MRC Global Inc. (MRC)
MRC and its subsidiaries distribute pipes, valves, fittings, and other infrastructure products and services internationally. They offer ball, butterfly, gate, globe, check, diaphragm, needle, and plug valves among other products.
On April 2, 2024, MRC Global announced a strategic partnership with Engine Capital to bolster strategic oversight and foster growth initiatives. This partnership will leverage Engine Capital's expertise to help MRC Global achieve its long-term goals and maximize shareholder returns.
In terms of forward EV/Sales, MRC's 0.53x is 70.9% lower than the industry average of 1.83x. Additionally, its 7.61x and 9.40x forward EV/EBITDA and EV/EBIT are 33.6% and 41.2% lower than the industry averages of 11.47x and 15.98x, respectively.
For the fiscal first quarter that ended March 31, 2024, MRC’s sales and adjusted gross profit stood at $806 million and $174 million, respectively. Its adjusted EBITDA stood at $57 million. For the same quarter, its adjusted net income attributable to common stockholders and adjusted net income attributable to common stockholders per share stood at $17 million and $0.20, respectively.
For the quarter ending September 30, 2024, MRC’s EPS is expected to increase 2.1% year-over-year to $0.33. Its revenue for the quarter ending December 31, 2024, is expected to increase 8.9% year-over-year to $836.10 million. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past year, MRC’s stock has gained 43.5% to close the last trading session at $12.76.
MRC’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 an A grade for Value and Sentiment and a B for Momentum. Within the Energy - Services industry, it is ranked #3 out of 51 stocks. Beyond what we stated above, we also have given MRC grades for Growth, Stability, and Quality. Get all the MRC ratings here.
NGL Energy Partners LP (NGL)
NGL transports, stores, blends, and markets crude oil, natural gas liquids, refined products/renewables, and water solutions. The company operates in three segments: Water Solutions, Crude Oil Logistics, and Liquids Logistics.
In terms of forward Price/Sales, NGL’s 0.11x is 93% lower than the industry average of 1.51x. Likewise, its 0.61x forward EV/Sales is 69.5% lower than the 1.99x industry average.
For the nine months that ended December 31, 2023, NGL reported total revenues of $5.33 billion. Its operating income grew marginally from the year-ago value to $259.84 million. NGL’s net income came in at $93.62 million, up 9.2% from the prior year’s period. Furthermore, the company’s adjusted EBITDA rose marginally year-over-year to $462.54 million.
Analysts expect NGL’s revenue for the quarter ending June 30, 2024, to increase marginally year-over-year to $1.62 billion. Its EPS for fiscal 2025 is expected to grow significantly by 620% year-over-year to $0.72. Over the past year, NGL’s stock has gained 109% to close the last trading session at $5.79.
NGL’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 an A grade for Growth and Momentum and a B for Value. It is ranked #10 out of 24 stocks in the A-rated MLPs - Oil & Gas industry. To see NGL’s Stability, Sentiment, and Quality ratings, click here.
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TGS shares were trading at $19.07 per share on Friday morning, down $0.13 (-0.68%). Year-to-date, TGS has gained 26.38%, versus a 9.79% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
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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