The United States annual inflation rate, which is measured by the consumer price index (CPI), for October came at 6.2%, its highest gain in more than three decades. And Danish investment banking company Saxo Bank has predicted that a persistent energy crisis and labor shortage will drive U.S. inflation above 15% before the start of 2023.
Furthermore, financial services firm Wells Fargo & Company (WFC), after studying 15 major asset classes, deduced that inflation is “bullish for oil“, with the potential for a 41% jump in its price. Oil prices increased on December 8 as fears of the omicron variant receded, with Brent Crude futures settling at $75.82 per barrel and West Texas Intermediate crude at $72.36 a barrel.
In addition, investment bank JPMorgan Chase & Co. (JPM) strategists expect oil prices to reach $125 per barrel in 2022 due to OPEC’s limited production increase. Therefore, we think the stocks of ConocoPhillips (COP), EOG Resources, Inc. (EOG), and Suncor Energy Inc. (SU) might be ideal bets to cash in on industry tailwinds.
COP in Houston, Tex., explores for, produces, transports, and markets crude oil, natural gas, and natural gas liquids (NGLs). The company’s portfolio comprises conventional and tight oil reservoirs, shale gas, heavy oil, LNG, oil sands, and other operations.
On December 8, COP announced that it had agreed to sell its subsidiary that owns the company’s 54% interest in the Indonesia Corridor Block Production Sharing Contract and a 35% shareholding interest in the Transasia Pipeline Company to MedcoEnergi for $1.355 billion. The transactions are expected to power up the Asia-Pacific segment in COP’s global portfolio. In addition, the company’s Australian subsidiary declared that it would exercise its right to purchase up to an additional 10% shareholding interest in Australia Pacific LNG (APLNG) from Origin Energy for up to $1.645 billion.
On December 1, COP announced that it had acquired the Delaware basin position of Shell Enterprises LLC for $9.50 billion in cash. The acquisition should expand the company’s operational capability.
For the fiscal third quarter, ended September 30, COP’s total revenues and other income increased 165.2% year-over-year to $11.62 billion. This can be attributed to a 158.2% rise from the prior-year quarter to $11.33 billion in sales and other operating revenues. Its adjusted earnings after tax and adjusted earnings per share of common stock came in at $2.37 billion and $1.77, respectively, up substantially from their negative year-ago values.
A $2.16 consensus EPS estimate for the current quarter (ending December 2021) indicates a 1,236.8% year-over-year increase. And the $13.65 billion consensus revenue estimate for the current quarter reflects a 125.7% improvement from the prior-year quarter. Furthermore, COP has an impressive surprise earnings history; it has topped consensus EPS estimates in each of the trailing four quarters.
The stock has gained 73.6% in price over the past year and 85.3% year-to-date to close yesterday’s trading session at $74.11.
COP’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, 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.
COP has a Momentum and Sentiment grade of A and a Growth and Quality grade of B. In the 82-stock Energy – Oil & Gas industry, it is ranked #15. The industry is rated B.
Click here to see the additional POWR Ratings for COP (Value and Stability).
EOG Resources, Inc. (EOG)
EOG explores for, develops, produces, and sells crude oil, natural gas, and NGLs. The Houston, Tex.-based company’s primary producing areas are in New Mexico and Texas, in the United States, the Republic of Trinidad and Tobago, China, and Oman.
On October 5, EOG published its 2020 Sustainability Report that highlighted the company’s commitment to the environment and social engagement. It reported a reduced emission intensity rate, increased water reuse, its plans for zero routine flaring by 2025, and its net-zero ambitions.
EOG’s total operating revenue and other increased 112.2% year-over-year to $4.77 billion in its fiscal third quarter, ended September 30. Its operating income came in at $1.47 billion, up considerably from its negative year-ago value. Its adjusted net income and adjusted net income per share rose 401.6% and 402.3%, respectively, from the same period last year to $1.26 billion and $2.16.
Analysts expect EOG’s EPS to increase 347.9% year-over-year to $3.18 in the current quarter (ending December 2021). The Street expects its revenue to rise 98.4% from the prior-year quarter to $5.88 billion in the current quarter. In addition, EOG has topped consensus EPS estimates in each of the trailing four quarters.
Over the past year, EOG’s shares have gained 72.7% in price to close yesterday’s trading session at $90.08. It has gained 80.6% year-to-date.
It is no surprise that EOG has an overall B rating, which translates to Buy in our POWR Rating system. EOG has an A grade for Momentum and a B grade for Growth, Sentiment, and Quality. It is ranked #10 in the Energy – Oil & Gas industry.
To see the additional POWR Ratings for Value and Stability for EOG, click here.
Suncor Energy Inc. (SU)
Headquartered in Calgary, Canada, SU is an integrated energy company that is focused primarily on developing petroleum resource basins in Canada’s Athabasca oil sands. The company engages in the exploration, acquisition, production, and transport of crude oil in Canadian and international markets.
On October 27, SU approved reinstating its 2019 dividend levels of CAD0.42 per common share, which indicated a 100% increase in its quarterly dividend. This reflects upon the company’s confidence in the execution of strategic plans and its desire to increase its returns to shareholders.
Earlier in October, SU confirmed that it had assumed operatorship in the Syncrude Joint Venture. The venture is expected to drive greater efficiencies in SU assets located in the Regional Municipality of Wood Buffalo.
For its third fiscal quarter, ended September 30, SU’s revenues, net of royalties, and other income increased 58.2% year-over-year to CAD10.21 billion ($8.08 billion). Its funds from operations rose 126.5% from the prior-year quarter to CAD2.64 billion ($2.09 billion). Its net earnings and net earnings per common share stood at CAD877 million ($693.63 million) and CAD0.59, respectively, representing a substantial increase over their negative year-ago values.
The Street’s $3.14 EPS estimate for the next year (fiscal 2022) indicates a 40.2% year-over-year increase. The Street’s $35.39 billion revenue estimate for the coming year reflects a 12.4% improvement from the current year.
The stock has gained 35.9% in price over the past year to close yesterday’s trading session at $24.78. It has gained 47.7% year-to-date.
SU’s POWR Ratings reflect this promising prospect. The stock has an overall B rating, which equates to Buy in our proprietary rating system. SU has an A grade for Growth and Momentum and a B grade for Quality. It is ranked #13 in the Energy – Oil & Gas industry.
In addition to the POWR Rating grades we have stated above, one can see SU ratings for Value, Stability, and Sentiment here.
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COP shares were trading at $72.85 per share on Thursday afternoon, down $1.26 (-1.70%). Year-to-date, COP has gained 87.81%, versus a 26.57% 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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