The energy sector is once again in the spotlight, thanks to surging demand, supply shortages, and escalating prices. In such a scenario, two fundamentally sound energy stocks, Marathon Oil Corporation (MRO) and Par Pacific Holdings, Inc. (PARR), could be solid watchlist additions.

Before delving into the fundamentals of these stocks, let us briefly examine a few factors driving the industry’s prospects.

According to the International Energy Agency (IEA), global oil demand is scaling unprecedented peaks, driven by robust summer air travel, oil use in power generation activities, and expanding Chinese petrochemical operations.

Additionally, Joseph McMonigle, the Secretary General of the International Energy Forum (IEF), attributes the surge in oil prices in the latter half of the year to the increasing demand from emerging economies, notably China and India. These two countries are expected to contribute a total of 2 million barrels per day to the rise in oil demand.

Moreover, the demand is set to receive an additional boost, stemming from the decision by Saudi Arabia, a significant oil producer, to prolong its voluntary reduction in crude oil output by 1 million barrels per day into September.

Additionally, the agency has highlighted the potential for further expansion in demand for this month, with a projection of the entire demand for 2023 reaching 102.2 million barrels per day. This projection signifies a notable increase of approximately 2.2 million barrels per day compared to the previous year.

Given this unprecedented oil demand coupled with reduced supply, Goldman Sachs anticipates oil prices could surge to $86 per barrel by the year's end.

Thus, all the above converging factors could create a favorable landscape for companies operating within this space. Therefore, keeping a close eye on fundamentally sound oil stocks, MRO and PARR, could be beneficial.

To that end, let us now evaluate the fundamentals of the featured stocks in detail for a better perspective:

Marathon Oil Corporation (MRO)

MRO operates as an independent exploration and production company in the United States and internationally. The company engages in the exploration, production, and marketing of crude oil and condensate, natural gas liquids, natural gas, etc.

On July 26, MRO declared a quarterly dividend of $0.10 per share of common stock, payable to its shareholders on September 11, 2023.

The company’s annual dividend of $0.40 translates to a 1.52% yield on the prevailing prices, while its four-year average yield is 1.57%. Its dividend payout has grown at CAGRs of 57.4% and 14.3% over the past three and five years, respectively.

The stock’s trailing-12-month net income margin of 30.56% is 117.4% higher than the 14.06% industry average. Its trailing-12-month levered FCF margin of 23.84% is 288.9% higher than the 6.13% industry average. Also, MRO’s trailing-12-month gross profit margin of 78.06% is 64.2% higher than the industry average of 47.53%.

For the fiscal second quarter (ended June 30, 2023), MRO’s total revenue and other income amounted to $1.51 billion, while its income from operations came in at $454 million. During the same period, the company’s adjusted net income came in at $295 million and $0.48 per share, respectively.

Street expects MRO’s revenue and EPS for the fiscal third quarter (ending September 2023) to be $1.65 billion and $0.59, respectively. Moreover, the company has an excellent earnings surprise history, surpassing the EPS estimates in each of the trailing four quarters.

Additionally, its revenue has grown at CAGRs of 18.5% and 3.8% over the past three and five years, respectively, while its EBITDA and levered FCF have increased at CAGRs of 24.2% and 129.7% over the past three years, respectively.

MRO’s shares have gained 14.5% over the past three months to close the last trading session at $26.39.

MRO’s POWR Ratings reflect this promising outlook. It has a B grade for Sentiment and Quality. In the 87-stock Energy - Oil & Gas industry, it is ranked #62. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

Click here to see MRO’s ratings for Growth, Value, Momentum, and Stability.  

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 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 trailing-12-month ROCE of 103.51% is 380.2% higher than the 21.56% industry average. Its trailing-12-month ROTC of 29.62% is 184.8% higher than the 10.40% industry average. Also, the stock’s trailing-12-month asset turnover ratio of 2.14x is 250.4% higher than the industry average of 0.61x.

During the six-month period that ended June 30, 2023, PARR’s revenues increased marginally year-over-year to $3.47 billion, while its adjusted EBITDA grew 25.1% from the year-ago value to $318.47 million. In addition, the company’s adjusted net income for the period increased by 43.1% and 39.6% year-over-year to $243.09 million and $3.98 per share, respectively.

Analysts expect PARR’s revenue for the third quarter (ending September 2023) to increase 10.6% year-over-year to $2.27 billion, while its EPS for the current quarter is expected to be $2.65. Additionally, the company surpassed the revenue estimates in each of the trailing four quarters, which is promising.

PARR’s revenue has grown at a CAGR of 17.5% and 20.4% over the past three and five years, respectively. Likewise, its EBITDA has increased at a CAGR of 208.3% over the past three years.

The stock has gained 84.6% over the past year to close the last trading session at $35.08.

PARR’s sound fundamentals are reflected in its POWR Ratings. It has a B grade for Value and Momentum. Within the same industry, it is ranked #25. Click here to see PARR’s ratings for Growth, Stability, Sentiment, and Quality.

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MRO shares were trading at $26.31 per share on Monday afternoon, down $0.08 (-0.30%). Year-to-date, MRO has declined -1.65%, versus a 15.08% rise in the benchmark S&P 500 index during the same period.

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