After hitting record lows back in April 2020, oil prices made a stellar comeback to hit new highs lately, backed by production cuts by major oil-producing countries across the globe and rising demand from the reopening economic activities. OPEC plans to ease its production cuts by 2.1 million barrels per day between May and July, with a strong forecast that the demand would rise by 5.95 million barrels per day (BPD) this year, or 6.6%.
So, oil and gas companies engaged in midstream activities should witness solid growth with upward pressure on oil prices. The renewed investor optimism is evident from the Global X MLP & Energy Infrastructure ETF’s (MLPX) 36.9% returns year-to-date compared to SPDR S&P 500 Trust ETF’s (SPY) 12.9% gains. Although the second wave of COVID-19 in India, and the United States’ delicate relation with Iran is causing distress in the oil market, the broader prospects look promising for the industry. The global oil and gas pipeline market is expected to grow at a CAGR of more than 6% over the next five years.
Given this backdrop, we think energy infrastructure stocks Flowserve Corporation (FLS), Enable Midstream Partners LP (ENBL), and Star Group L.P. (SGU) have the potential to generate significant returns through the remainder of this year.
Flowserve Corporation (FLS)
FLS designs manufacture distributes, and services industrial flow management equipment throughout the world. The company produces pumps, valves, and mechanical seals and primarily serves oil and gas, chemical and pharmaceuticals, power generation, and water management markets, as well as general industries. It distributes its products through direct sales, distributors, and sales representatives.
FLS is providing support to Pfizer Inc. (PFE) to support the production of its COVID-19 vaccine. Upon immediate support needed during the engineering runs of vaccine production, FLS’s team from various countries has provided pumps, cryogenic ball valves, and mechanical seals. FLS’ critical product expertise, engineering, and design support could result in a long-term partnership with PFE.
FLS launched a revolutionary RedRaven IoT service platform on January 26, that gives companies remote control over critical aspects of operations. Providing wireless or wired options that collect data from these assets and then transmit it to the cloud with a secure, data-encrypted solution, enables facilities to predict equipment failures and reduce expensive downtime, and gain real insights to make informed decisions that improve plant productivity and profitability. FLS hopes to witness good sales in the near term.
For its fiscal first quarter, ended March 31, 2021, FLS’ adjusted operating income came in at $69.81 million, which represents a 40.8% improvement year-over-year. The company’s adjusted net income was $36.70 million for the quarter, up 45.7% from the prior year period. Its adjusted EPS increased 47.4% year-over-year to $0.28.
Analysts expect the stock’s EPS to grow at an 11.6% rate over the next five years. FLS has climbed 39.9% over the past nine months to close yesterday’s trading session at $40.47.
FLS’ 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 different factors, with each factor weighted to an optimal degree.
The stock has a B grade for Growth and Value. We have also graded FLS for Stability, Sentiment, Quality, and Momentum. Click here to access all FLS ratings.
FLS is ranked #20 of 84 stocks in the A-rated Industrial – Machinery industry.
Enable Midstream Partners LP (ENBL)
ENBL owns, operates, and develops midstream energy infrastructure assets. The company offers natural gas gathering, processing, and fractionation services, as well as crude oil gathering services for its producer customers. It also provides interstate and intrastate natural gas pipeline transportation and storage services to natural gas producers, utilities, and industrial customers.
ENBL received the U.S. Federal Energy Regulatory Commission’s (FERC) approval to construct and operate the Gulf Run Pipeline project under section 7(c) of the Natural Gas Act. Expected to complete by 2022, the $540 million projects will transport natural gas from some of the most prolific natural gas producing regions in the U.S. to the U.S. Gulf Coast and international markets. It is also backed by a 20-year commitment for 1.1 billion cubic feet per day (Bcf/d) from the cornerstone shipper Golden Pass LNG. Amid the rising demand for LNG nowadays, this pipeline project is expected to create huge demand in the future.
ENBL’s total revenues for the fiscal first quarter ended March 31, 2021, came in at $970 million, which represents a 49.7% year-over-year improvement. The company’s operating income is reported at $206 million, up 41.1% from the prior year period. While its net income increased 46.4% year-over-year to $164 million, its EPS increased 73.7% year-over-year to $0.33.
Analysts expect ENBL’s EPS to improve 131.4% year-over-year for the current quarter, ending June 30, 2021, to $0.19. Its consensus revenue estimate of $713.58 million for the current quarter represents a 38.6% rise on a year-over-year basis. Analysts expect the stock’s EPS to grow at 37.6% per annum over the next five years. ENBL has gained 105.6% over the past nine months and closed yesterday’s trading session at $9.11.
ENBL’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our POWR Ratings system.
The stock has a B grade for Growth and Sentiment. In addition to the POWR Ratings grades we’ve just highlighted, one can see ENBL’s ratings for Value, Momentum, Stability, and Quality here.
ENBL is ranked #3 of 39 stocks in the B-rated MLPs – Oil & Gas industry.
Star Group L.P. (SGU)
SGU is a service energy provider to residential and commercial customers. It sells diesel, gasoline, and home heating oil on a delivery-only basis, as well as plumbing services. It also installs, maintains, and repairs heating and air conditioning equipment.
For its fiscal second quarter, ended March 31, 2021, SGU’s total sales came in at $604.14 million, which represents an 11.2% improvement year-over-year. The company’s operating income is reported at $119.70 million, up 39% from the prior-year period. SGU’s net income for limited partners came in at $84.48 million, up 45.7% from the prior-year period. Its EPS increased 66% year-over-year to $1.71. SGU has gained 35% over the past year and ended yesterday’s trading session at $11.27.
It’s no surprise that SGU has an overall A rating, which equates to Strong Buy in our POWR Ratings system.
The stock has an A grade for Quality, and a B grade for Growth and Value. To see additional POWR Ratings for SGU’s Stability, Sentiment and Momentum, click here.
SGU is ranked #1 in the MLPs – Oil & Gas industry.
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FLS shares were trading at $40.07 per share on Friday afternoon, down $0.40 (-0.99%). Year-to-date, FLS has gained 9.32%, versus a 11.94% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...
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