There was a brief spell of profit-taking in oil on concerns about demand declining if the economy continued to weaken. However, the decline was short-lived, and prices soon rebounded. 

Brent Crude gained 1.3% to rise for the sixth straight day to $80.58 per barrel today, driven by tight supply amid the growing demand. In addition, the U.S. West Texas Intermediate (WTI) crude futures rose 1.4% to $76.51 per barrel. Natural gas prices have also doubled this year and are expected to grow in the upcoming months to reach its 13-year high this winter.

Therefore, fundamentally sound energy stocks Energy Transfer LP (ET), MOL Hungarian Oil and Gas PLC (MGYOY), and SilverBow Resources, Inc. (SBOW), which are currently at attractive valuations, could be solid additions to your portfolio.

Energy Transfer LP (ET)

ET provides energy-related services with the help of a diversified portfolio of energy assets. The company is primarily engaged in transporting and selling natural gas to industrial-end users and other companies. ET owns 28.5 million common units of Sunoco LP (SUN) and 46.1 million common units of USA Compression Partners, LP (USAC).

On September 1, ET signed a 15-year Power Purchase Agreement with SoftBank Group Corp. (SFTBY) subsidiary, SB Energy, a solar energy storage and technology platform. The agreement is over the Eiffel Solar Project located in Northeast Texas and is expected to cater to the company’s electricity requirement through low-cost solar power. This is aligned with the company’s long-term sustainability targets.

In July, ET signed a Memorandum of Understanding (MoU) with the Republic of Panama regarding a future project, the Trans-Panama Gateway Pipeline, to develop and construct a terminal on the Pacific as well as the Atlantic side of the country. The impending project should expand ET’s international operations and strengthen its position in the industry.

In terms of non-GAAP forward P/E, ET is currently trading at 4.72x, 57.8% lower than the industry average of 11.20x. Its forward Price/Sales multiple of 0.38 is 70.3% lower than the industry average of 1.29.

In the three months ended June 30, ET’s revenue increased 105.8% year-over-year to $15.10 billion. Operating income went up 19.5% from the prior-year quarter to $1.60 billion. Net income attributable to partners and net income per limited partner unit came in at $626 million and $0.20, up 77.3% and 53.8% year-over-year, respectively.

Analysts expect its EPS to increase 57.9% year-over-year to $0.30 for the next quarter (ending December 2021). Likewise, the consensus revenue estimate of $15.91 billion for the upcoming quarter reflects a 58.6% year-over-year improvement. ET’s stock has gained 75.4% over the past year and 55.8% year-to-date to close yesterday’s trading session at $9.63.

ET’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 different factors, with each factor weighted to an optimal degree.

The stock has a Value grade of A, and a Momentum grade of B. It is ranked #15 out of the 91 stocks in the Energy – Oil & Gas industry.

In addition to the POWR Rating grades we’ve stated above, one can see ET ratings for Growth, Stability, Sentiment, and Quality here.

MOL Hungarian Oil and Gas PLC (MGYOY)

MGYOY is an integrated oil and gas company operating through four segments: upstream; gas midstream; downstream; and consumer services. The company is headquartered in Budapest, Hungary.

On June 8, MGYOY reached an agreement with Austrian oil, gas, and petrochemical giant OMV AG (OMVKY) to purchase its Slovenian unit OMV Slovenija d.o.o. The purchase of a 92.3% stake in the unit is expected to enable MGYOY to expand its network of service stations and enhance its consumer services segment.

MGYOY’s forward EV/Sales multiple of 0.48 is 80.4% lower than the industry average of 2.44. In terms of forward Price/Sales, MGYOY is currently trading at 0.29x, 77.8% lower than the industry average of 1.29x.

For the second fiscal quarter ended June 30, the company’s net sales revenues went up 88.6% year-over-year to $4.88 billion. EBITDA came in at $922 million, up 140.1% from the same period last year. Net profit attributable to equity holders of the parent and EPS stood at $630 million and $0.90 respectively, up significantly from their negative year-ago values.

Street revenue estimate of $4.89 billion for the current quarter (ending September 2021) indicates a 41.2% year-over-year increase. Over the past year, the stock has gained 50% to close yesterday’s trading session at $3.90.

It’s no surprise that MGYOY has an overall rating of A which equates to Strong Buy in our proprietary rating system. The stock also has a Value grade of A and a Momentum, Stability, Sentiment, and Quality grade of B. In the 50-stock, A-rated Foreign Oil & Gas industry, it is ranked #3.

Click here to see the additional POWR Ratings for MGYOY (Growth).

SilverBow Resources, Inc. (SBOW)

SBOW is an oil and natural gas exploration and production company primarily focused on developments in the Eagle Ford Shale in South Texas.

In August, SBOW entered into a definitive agreement to acquire oil and gas assets in Eagle Ford, Texas, from an anonymous seller. About this acquisition, SeanWoolverton, SBOW’s Chief Executive Officer, said, “We continue to execute on accretive opportunities and bolster our balanced oil and gas portfolio. This marks the second acquisition we have announced since the beginning of August. Our first deal increased our high-return Eagle Ford and Austin Chalk locations, as well as incremental working interest in producing wellbores, in our La Mesa position. Today’s announcement expands our gas portfolio in the Western Eagle Ford, while also adding oil acreage in three new counties.”

In terms of forward EV/EBIT, SBOW is currently trading at 4.22x, 67.3% lower than the industry average of 12.90x. Its forward Price/Cash Flow multiple of 1.45 is 73.7% lower than the industry average of 5.50.

In the second fiscal quarter ended June 30, SBOW’s oil and gas sales revenues increased 181.2% year-over-year to $69.86 million. Operating income improved to $33.54 million, up substantially from its negative year-ago value. Adjusted EBITDA went up 64.7% from the prior-year quarter to $42.79 million.

The consensus EPS estimate for the next quarter (ending December 2021) of $2.45 reflects an increase of 85.6% year-over-year. Likewise, the consensus revenue estimate of $88 million for the upcoming quarter indicates a rise of 64.6% from the same period last year. Moreover, SBOW has beat consensus EPS estimates in three out of the trailing four quarters, which is impressive. SBOW’s stock has gained 502.5% over the past year and 356.1% year-to-date to close yesterday’s trading session at $24.22.

SBOW’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, which translates to Strong Buy in our POWR Rating system. SBOW has an A grade for Growth, Value, and Momentum, and a B grade for Sentiment and Quality. It is ranked #1 out of the 91 stocks in the Energy – Oil & Gas industry.

To see the additional SBOW POWR Ratings for Stability, click here.

ET shares were trading at $9.59 per share on Tuesday afternoon, down $0.04 (-0.42%). Year-to-date, ET has gained 63.99%, versus a 17.73% 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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