On the backs of geopolitical turmoil and tight supply, energy prices surged last year. However, analysts and government data expect wholesale U.S. power prices to drop in 2023 as the cost of natural gas falls and cheap renewable electricity expands.
On the other hand, China’s reopening is anticipated to be a major tailwind for the oil and gas sector this year. According to Energy Aspects, FGE, S&P Global Commodity Insights, and Wood Mackenzie, Chinese crude oil imports could increase to an average of 11.8 million barrels per day (bpd) this year.
Moreover, with the OPEC+ producer group’s agreement in place to cut oil production targets by 2 million bpd by the end of this year and Russia’s plans to cut oil production by 500,000 bpd, equating to about 5% of its output, oil prices could climb to $100 per barrel by the end of 2023.
Additionally, investors’ interest in the energy industry is evident from the Energy Select Sector SPDR Fund’s (XLE) 10.3% returns over the past six months. Amid this backdrop, investors could look to buy fundamentally strong energy stocks Marathon Petroleum Corporation (MPC), Valero Energy Corporation (VLO), and Unit Corporation (UNTC).
Marathon Petroleum Corporation (MPC)
MPC operates as an integrated downstream energy company primarily in the United States. It operates in two segments, Refining & Marketing; and Midstream.
Over the last three years, MPC’s dividend payouts have grown at a 7% CAGR. Its four-year average dividend yield is 4.12%, and its forward annual dividend of $3.00 per share translates to a 2.45% yield on prevailing prices. It is expected to pay a quarterly dividend of $0.75 per share on March 10, 2023.
In terms of forward non-GAAP P/E, MPC’s 6.59x is 15% lower than the 7.76x industry average. Likewise, its 6.41x forward EV/EBIT is 14.8% lower than the 7.53x industry average.
For the fiscal fourth quarter that ended December 31, 2022, MPC’s total revenues and other income increased 12.6% year-over-year to $40.09 billion. Net income attributable to MPC increased 329.1% year-over-year to $3.32 billion.
Its adjusted EBITDA from continuing operations increased 107.6% year-over-year to $5.80 billion. In addition, its net EPS came in at $7.09, representing a 458.3% increase from the prior-year quarter.
MPC’s EPS for the quarter ending March 31, 2023, is expected to increase 262.3% year-over-year to $5.25. The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. The stock has gained 25.6% over the past nine months to close the last trading session at $122.50.
MPC’s POWR Ratings reflect solid prospects. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the B-rated Energy - Oil & Gas industry, it is ranked #3 out of 91 stocks. The stock has an A grade for Momentum and Quality and a B for Growth and Value.
Click here to see the additional POWR Ratings of MPC (Stability and Sentiment).
Valero Energy Corporation (VLO)
VLO manufactures, markets, and sells transportation fuels and petrochemical products internationally. The company operates through three segments: Refining; Renewable Diesel; and Ethanol.
Over the last three years, VLO’s dividend payouts have grown at a 2.5% CAGR. Its four-year average dividend yield is 5.02%, and its forward annual dividend of $4.08 per share translates to a 3.15% yield on current prices. It is expected to pay a quarterly dividend of $1.02 per share on March 16, 2023.
In terms of forward non-GAAP P/E, VLO’s 5.88x is 24.1% lower than the 7.76x industry average. Likewise, its 5.26x forward EV/EBIT is 30.1% lower than the 7.53x industry average.
For the fiscal fourth quarter that ended December 31, 2022, VLO’s revenues increased 16.3% year-over-year to $41.75 billion. Its operating income increased 169.4% from the year-ago period to $4.30 billion. Net income attributable to VLO increased 208.5% year-over-year to $3.11 billion. In addition, its EPS came in at $8.15, representing a 231.3% increase from the prior-year quarter.
VLO’s EPS and revenue for the quarter ending March 31, 2023, are expected to increase 190.1% and 4.6% year-over-year to $6.70 and $40.30 billion, respectively. It has a commendable earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. The stock has gained 10.1% over the past six months to close the last trading session at $129.61.
It is no surprise that VLO has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. It is ranked #4 in the same industry. Moreover, it has an A grade for Momentum and a B for Growth, Value, Sentiment, and Quality.
To see the additional rating of VLO for Stability, 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.
In terms of trailing-12-month EV/EBITDA, UNTC’s 1.35x is 77.4% lower than the 5.95x industry average. Likewise, its 3.04x trailing-12-month P/E is 60.5% lower than the 7.69x industry average.
UNTC’s income from operations for the fiscal third quarter that ended September 30, 2022, increased 39% year-over-year to $66.26 million. Net income attributable to UNTC increased 786.7% year-over-year to $55.82 million. Additionally, net EPS attributable to UNTC came in at $5.60, representing a 918.2% increase from the year-ago period.
The stock has gained 1.4% over the past three months to close the last trading session at $50.00.
UNTC’s positive outlook is 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 is ranked #6 in the same industry. In addition, it has an A grade for Value, Momentum, and Quality.
Click here to see the additional ratings of UNTC for Growth, Stability, and Sentiment.
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MPC shares were unchanged in premarket trading Monday. Year-to-date, MPC has gained 5.87%, versus a 6.49% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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