With the consumer price index and producer price index showing a moderate rise of 7.7% and 8%, respectively, for October, markets are gaining confidence that this would influence the Fed to slow the pace of rate hikes. This could pave the way for the economy, which has lately been burdened with increasing borrowing costs, to get back on the growth trajectory.
The recovering economy is expected to increase the demand and price of energy, which has been in short supply for most of the year, due to supply-side constraints caused by the conflict between Russia and Ukraine and OPEC+’s decision to cut oil production by 2 million barrels/day.
Moreover, with the E.U. embargo on Russian crude oil expected to kick in from December onward, more supply threatens to be taken off the market as Russia’s oil production is projected to fall to as low as 9 million barrels per day (BPD).
The above factors intensify the tailwinds for the U.S. energy businesses, which are poised to fill in the supply vacuum and be rewarded with inflated margins as prices get squeezed higher. Therefore, investing in the fundamentally strong energy stock Marathon Petroleum Corporation (MPC) could be wise.
Stock to Buy:
Marathon Petroleum Corporation (MPC)
MPC operates as an energy company involved in midstream and downstream businesses, such as petroleum product refining, marketing, and retail in the United States. The company operates through two segments: Refining & Marketing and Midstream transport.
On November 1, MPC announced its quarterly dividend of $0.75 per share on the common stock, reflecting an increase of approximately 30% over its previous dividend of $0.58 per share. The dividend is payable to shareholders on December 12, 2022.
MPC pays $3 annually as dividends, which translates to a yield of 2.50% at the current price. The company’s dividend payouts have increased at 10.4% CAGR over the past five years, indicating its financial strength and strong track record of returning surplus capital.
On September 21, MPC announced the finalization of its joint venture with Neste (NTOIY) for the Martinez renewables project. The partnership, to be called Martinez Renewables, is structured as a 50/50 joint venture, with NTOIY to contribute a total of $1 billion, including half of the total project development costs projected at $1.2 billion through the completion of the project.
According to MPC, the transaction reflects its commitment to providing low carbon-intensity feedstocks. It is expected to improve the project’s overall economics through the improved procurement of advantaged feedstock while also creating a platform for additional collaboration within renewables.
For the fiscal 2022 third quarter ended September 30, MPC’s total revenues and other income increased 44.8% year-over-year to $47.24 billion, while its adjusted EBITDA increased 182.9% year-over-year to $6.83 billion due to improving operational and commercial execution as the refining system ran at near full utilization to meet demand.
As a result, adjusted net income attributable to MPC rose 731.3% from the prior-year quarter to $3.86 billion, and its adjusted EPS came in at $7.81, up 969.9% year-over-year.
Analysts expect MPC’s revenue and EPS of the fiscal year ending December 2022 to increase 47.4% and 963.2% year-over-year to $178.24 billion and $26.05, respectively. The company has topped the consensus revenue and EPS estimates in each of the trailing four quarters.
The stock has gained 12.6% over the past month and 82.8% year-to-date to close the last trading session at $120.
MPC’s POWR Ratings reflect its promising outlook. The company has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
MPC has a grade of A for Quality and Momentum and a B for Growth and Value. As a result, it tops the list of 94 stocks in the B-rated Energy – Oil & Gas industry.
Click here to see additional POWR Ratings for Sentiment and Stability for MPC.
Stocks to Avoid:
Tellurian Inc. (TELL)
TELL operates as a global low-cost natural gas business. The company develops a portfolio of natural gas production, liquefied natural gas (LNG) marketing, and infrastructure assets.
On September 19, TELL announced the withdrawal of its proposed public offering of 11.25% senior secured notes due 2027 and warrants to purchase shares of its common stock due to uncertain conditions in the high-yield market. These bonds were meant to fund the initial construction of its proposed multi-billion-dollar Driftwood LNG plants in Louisiana.
For the fiscal 2022 third quarter ended September 30, TELL reported a net loss of $14.23 million and $0.03 per share. The company’s short and long-term liabilities stood at $330.56 million and $459.13 million, respectively, as of September 30, 2022, compared to $88.80 million and $114.71 million, as of December 31, 2021.
Analysts expect TELL’s revenue for the fiscal 2023 first quarter ending March 2023 to decline 8% year-over-year to $135.26 million. The company is expected to report a loss of $0.08 per share during the same period. The stock has slumped 13.4% year-to-date to close the last trading session at $2.92.
TELL’s bleak outlook is also reflected in its overall F rating, which translates to a Strong Sell. It is also rated F for Quality, Stability, Sentiment, and Value.
Consequently, TELL has a penultimate rank among 94 stocks in the Energy – Oil & Gas industry.
Click here to see additional POWR Ratings for Growth and Momentum for TELL.
Camber Energy, Inc. (CEI)
CEI operates as an independent oil and natural gas company. It acquires, develops, and sells crude oil, natural gas, and natural gas liquids from various known productive geological formations in Kansas, Louisiana. It provides energy and power solutions to industrial and commercial users.
On November 11, CEI disclosed that it had received a letter from NYSE on November 7. The exchange has notified the company that its securities have been selling for a substantial period of time at a low price per share, which the Exchange determined to be a 30-day trading average price of less than $0.20 per share.
Therefore, CEI has been advised to demonstrate sustained price improvement or effect a reverse stock split no later than May 7, 2023, to remain listed at NYSE.
For the quarter ended September 30, CEI’s loss from operations widened 32.8% year-over-year to $1.22 million. During the same period, the net loss attributable to common shareholders came in at $23.28 million and $0.05 per share. The company’s total assets stood at $37.52 million as of September 30, 2022, compared to $46.40 million as of December 31, 2021.
Shares of CEI have plummeted 10.9% over the past month and 84.5% year-to-date to close the last trading session at $0.14.
CEI’s fundamental weakness is reflected in its overall rating of D, which translates to a Sell in our POWR Ratings system. It also has a grade of D for Stability and Sentiment.
CEI is ranked #90 in the same industry. Click here to see the additional POWR Ratings (Value, Quality, Growth, and Momentum) for CEI.
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MPC shares were trading at $120.04 per share on Wednesday afternoon, up $0.04 (+0.03%). Year-to-date, MPC has gained 91.28%, versus a -15.77% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities. More...
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