Crude oil and natural gas prices are experiencing a remarkable rally, driven by rising demand from a reopening economy and tight supply. Oil prices hit multi-year highs on October 18, with Brent crude oil futures hitting $85.45 per barrel, while the United States West Texas intermediate (WTI) reached $83.18 per barrel. And oil prices could rise further if OPEC sticks to its tight supply policy. Hence, analysts expect oil prices to hit $100 per barrel.
Furthermore, the United States Energy Information Administration (EIA) expects natural gas spot prices at the benchmark Henry Hub to average $5.67 per million British thermal units (MMBtu) between October and March, representing the highest prices since the 2007-2008 period.
Given the industry’s momentum, undervalued stocks APA Corporation (APA), Subsea 7 S.A. (SUBCY), Whiting Petroleum Corporation (WLL), and Berry Corporation (BRY) could be solid bets now. These stocks have an overall B (Buy) rating in our proprietary POWR Ratings system.
APA Corporation (APA)
APA in Houston, Tex., operates as an oil and gas exploration company in the United States, Egypt’s Western Desert, and the United Kingdom’s North Sea. The company also operates explorations in Suriname. In 2021, Apache Corporation came under APA in a holding company structure.
On October 11, APA subsidiary, Apache Corporation, reached a key milestone in sustainability targets three months ahead of its scheduled date. This demonstrates the company’s commitment to achieving its emission control targets.
On September 20, APA raised its quarterly dividend from 2.5 cents per share to 6.25 cents per share, payable on November 22 this year. The increase reflects APA’s strength in core assets and belief in long-term cash flow generation.
In terms of its forward Price/Cash Flow, APA is currently trading at 2.98x, which is 50.6% lower than the 6.03x industry average. Its 7.02 forward EV/EBIT multiple is 48.3% lower than the 13.57 industry average.
For its second fiscal quarter, ended June 30, APA’s total revenues increased 133.5% year-over-year to $1.76 billion. Its adjusted earnings after tax and adjusted EPS stood at $266 million and $0.70, respectively, up substantially from their negative year-ago values. Its adjusted EBITDAX increased 330.2% year-over-year to $1.01 billion.
The Street’s $1.09 EPS estimate for the current quarter (ending December 2021) reflects a 2,280% year-over-year increase, while the Street’s $1.72 billion revenue estimate for the current quarter indicates a rise of 33.7% from the prior-year quarter. Moreover, APA has an impressive earnings surprise history; it has topped consensus EPS estimates in each of the trailing four quarters.
The stock has gained 187.4% in price over the past year and 89.8% year-to-date to close yesterday’s trading session at $26.93.
APA’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
APA has an A grade for Momentum and Quality, and a B grade for Growth and Value. It is ranked #3 out of the 90 stocks in the Energy – Oil & Gas industry. To see the additional POWR Ratings for Stability and Sentiment for APA, click here.
Subsea 7 S.A. (SUBCY)
Headquartered in Luxembourg City, Luxembourg, SUBCY is an offshore project delivery and services provider for the global energy industry. The company provides field development products and services such as project management, design and engineering, and installation.
On October 19, SUBCY announced a new long-term day-rate contract in Brazil with Petróleo Brasileiro S.A – Petrobras (PBR) regarding pipelay support vessels (PLSV). Each contract includes a three-year and one-year option for using the delivery vessels. Also, in October, the company declared that Turkish Petroleum had awarded it a contract for offshore development in the Black Sea at the Sakarya field. The contract was awarded to a consortium with oil and gas technology company Schlumberger Limited (SLB) to install flowlines and tie-in connections. These contracts demonstrate the company’s market reach and strong position in the industry.
SUBCY’s 0.59 forward EV/Sales multiple is 77.8% lower than the 2.65 industry average. In terms of forward Price/Sales, it is currently trading at 0.58x, which is 61.1% lower than the 1.48x industry average.
In its second fiscal quarter, ended June 30, SUBCY’s revenue increased 58.9% year-over-year to $1.20 billion. Its gross profit and adjusted EBITDA came in at $24.70 million and $90.30 million, respectively, registering a substantial increase from their negative year-ago values.
Analysts expect SUBCY’s revenue to increase 24.3% year-over-year to $1.26 billion in the current quarter (ending December 2021).
SUBCY’s stock has gained 20.5% in price over the past year to close yesterday’s trading session at $9.07. It has gained 24.4% over the past month.
It’s no surprise that SUBCY has an overall B rating, which translates to Buy in our POWR Rating system. The stock has a Momentum grade of B. It is ranked #6 out of 43 in the Energy – Services industry.
Click here to see the additional POWR Ratings for SUBCY (Growth, Value, Stability, Sentiment, and Quality).
Whiting Petroleum Corporation (WLL)
WLL operates as an oil and gas company that acquires, develops, and produces crude oil, natural gas, and natural gas liquids and sells them to end-users and other buyers. WLL is based in Denver, Colo.
On September 27, WLL announced the acquisition of leasehold interests and related assets in the Williston Basin of North Dakota, and the closing of the divestiture of its Redtail leasehold interests and associated assets in the Denver-Julesburg Basin of Colorado. The addition of 60 drillable locations should bolster the company’s production capacity.
In terms of non-GAAP forward P/E, WLL is currently trading at 5.51x, which is 55.6% lower than the 12.41x industry average. Its 6.45 forward EV/EBIT multiple is 52.5% lower than the 13.57 industry average.
WLL’s total operating revenues increased 283.9% year-over-year to $351.65 million in its second fiscal quarter, ended June 30. This can be attributed to a 282.1% rise from the prior-year quarter in oil, NGL, and natural gas sales to $349.98 million. For the six months ended June 30, its adjusted net income came in at $225.40 million, while its adjusted net income per share stood at $5.80, both up considerably from their negative year-ago values.
A $2.95 consensus EPS estimate for the current quarter (ending December 2021) indicates a 102.1% year-over-year increase. Likewise, the $283.39 million consensus revenue estimate for the current quarter reflects a 33.5% improvement from the same period last year. Furthermore, WLL has an impressive surprise earnings history; it has beaten consensus EPS estimates in three out of the trailing four quarters.
The stock has gained 300.8% in price over the past year and 169.8% year-to-date to close yesterday’s trading session at $67.45.
WLL has an overall B rating which equates to Buy in our proprietary POWR rating system. The stock has an A grade for Momentum, and a B grade for Value and Quality. In the 11-stock Energy – Drilling industry, it is ranked #2.
Click here to see the additional POWR ratings for Growth, Stability, and Sentiment for WLL.
Berry Corporation (BRY)
BRY is an independent upstream energy company focused on developing conventional oil reserves in the United States. The Bakersfield, Calif., concern has properties located in San Joaquin and Ventura basins, California; Uinta basin, Utah and Piceance basin, Colorado.
On October 4, BRY announced the acquisition of Basic Energy Services’ operations in California, including the legacy C&J Well Services. The acquired operations are expected to act as subsidiaries of BRY. Regarding the acquisition, BRY’s Chairman and Chief Executive Officer, Trem Smith, said “We are excited to have C&J Well Services as part of the BRY portfolio and will avail their capabilities to support California’s goals for the energy transition. Together, we believe the new team is well-positioned to be a leader in these efforts.”
In August, BRY entered a credit agreement to establish a Reserve Based Lending (RBL) facility with a borrowing base of $500 million. It also announced the repurchase of approximately 471,000 shares. This should improve its earnings per share and the return on the company’s equity.
BRY’s 4.42 forward EV/EBITDA multiple is 45.8% lower than the 8.15 industry average. In terms of forward Price/Cash Flow, it is currently trading at 3.45x, which is 42.7% lower than the 6.03x industry average. Bry’s total revenues and other increased 196.7% year-over-year to $99.25 million in its second fiscal quarter, ended June 30. This can be attributed to a 109.6% year-over-year rise in oil, natural gas, and natural gas liquids sales to $147.78 million. Its adjusted EBITDA unhedged rose 1,303.7% from the same period last year to $78.03 million.
Analysts expect EPS to improve 63.6% year-over-year to $0.18 in the current quarter (ending December 2021). The $145.75 million consensus revenue estimate for the current quarter reflects a 137.5% improvement from the prior-year quarter.
The stock has gained 168.9% in price over the past year to close yesterday’s trading session at $8.55. It has gained 132.3% year-to-date.
BRY’s POWR Ratings reflect this promising outlook. The stock has an overall B rating which equates to Buy in our POWR Ratings system. BRY has an A grade for Momentum, and a B grade for Growth and Value. It is ranked #13 in the Energy – Oil & Gas industry.
In addition to the POWR Rating grades we’ve stated above, one can see BRY ratings for Stability, Sentiment, and Quality here.
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APA shares were trading at $26.85 per share on Tuesday afternoon, down $0.08 (-0.30%). Year-to-date, APA has gained 90.04%, versus a 21.50% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...
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