Energy stocks performed significantly better than the broader S&P 500 index for most of 2022 due to rising oil and gas prices aggravated by the Russia-Ukraine war. According to the CPI report of December 2022, the energy index rose 7.3% over the past 12 months. The fuel oil index rose 41.5%, and the index for natural gas increased 19.3% over the same period.
Moreover, investment firm Goldman Sachs Group, Inc. (GS) anticipates Brent crude to trade at $105 a barrel by the fourth quarter of 2023 due to “solid” growth in global oil demand. It forecasts an increase in oil demand by 2.7 million barrels per day this year. GS believes that OPEC’s significant pricing power will limit downside risks to its bullish oil forecast.
Furthermore, demand for natural gas is on the rise. According to the Energy Information Administration (EIA), U.S. domestic natural gas consumption averaged 88.7 billion cubic feet per day in 2022, indicating a 6% increase from 2021.
Furthermore, according to a report by Allied Market Research, the global natural gas market is projected to grow a CAGR of 3.4% to $424.70 trillion by 2031.
Investors’ interest in energy stocks is also evident from the Energy Select Sector SPDR ETF’s (XLE) 39.2% returns over the past year. Given the industry’s promising growth prospects, it seems wise to invest in fundamentally strong energy stocks Marathon Petroleum Corporation (MPC), Valero Energy Corporation (VLO), and Adams Resources & Energy, Inc. (AE) this year.
Marathon Petroleum Corporation (MPC)
MPC primarily operates as an integrated downstream energy corporation in the United States. It operates in two segments, Refining and Marketing; and Midstream. The company refines crude oil and other feedstocks at its refineries and transports, stores, distributes, and markets crude oil and refined products.
In terms of forward non-GAAP P/E, MPC is trading at 4.75x, 41.6% lower than the industry average of 8.14x. The stock’s forward EV/EBITDA multiple of 3.46 is 37% lower than the industry average of 5.48.
For the third quarter of fiscal 2022 (ended September 30, 2022), MPC’s total revenue and other income increased 44.8% year-over-year to $47.24 billion, while its income from continuing operations, net of tax, grew 387.4% from the year-ago value to $5.02 billion. The company’s adjusted EBITDA from continuing operations rose 182.9% from the prior year’s period to $6.83 billion.
In addition, adjusted net income attributable to MPC increased 731.3% year-over-year to $3.86 billion, and adjusted EPS came in at $7.81, a 969.9% increase from the year-ago value.
The company pays a $3 per share dividend annually, which translates to a 2.46% yield on the current price level. MPC’s dividend payouts have grown at a 10.4% CAGR over the past five years, and its four-year average dividend yield is 4.14%.
For the fiscal year that ended December 2022, analysts expect MPC’s revenue to increase 47.2% year-over-year to $178.05 billion. The company’s EPS for the same year is expected to grow to 945.6% from the previous year to $25.62. Moreover, MPC surpassed its consensus EPS in all four trailing quarters, which is impressive.
Shares of MPC have gained 42.9% over the past six months and 63.3% over the past year to close the last trading session at $121.77.
MPC’s POWR Ratings reflect its promising outlook. 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, each weighted to an optimal degree.
The stock has an A grade for Momentum and Quality and a B for Growth. In the 92-stock B-rated Energy – Oil & Gas industry, MPC ranks #8.
Beyond what we stated above, we also have MPC’s ratings for Stability, Value, and Sentiment. Get all MPC ratings here.
Valero Energy Corporation (VLO)
VLO manufactures and sells transportation fuels and petrochemical products on a global scale. It operates in three segments: Refining; Renewable Diesel; and Ethanol. It produces diesel fuel, jet fuel, blendstocks, asphalts, and other refined petroleum products.
On September 26, 2022, VLO reduced its debt by approximately $1.25 billion through previously announced tender offers for various series of VLO’s senior notes, which the corporation funded with cash on hand.
These transactions reduced VLO’s debt by roughly $3.60 billion when combined with debt reduction and refinancing agreements completed in the second half of 2021 and the first half of 2022.
The stock’s forward non-GAAP P/E trading at 4.95x is 39.2% lower than the industry average of 8.14x. Moreover, VLO’s forward EV/Sales of 0.35x is 81.2% lower than the industry average of 1.86x.
The company’s revenue grew 50.6% year-over-year to $44.45 billion in the fiscal third quarter that ended September 30, 2022. Its operating income rose 447.2% from the prior year’s period to $3.79 billion. VLO’s net income came in at $2.91 billion, up 473.2% year-over-year, and its EPS increased 536.3% from the year-ago value to $2.25.
VLO pays a $3.92 per share dividend annually, which translates to a 2.88% yield on the current price level. Its dividend payments have grown at a 7% CAGR over the past five years. Moreover, the company’s four-year average dividend yield is 5.05%.
The consensus revenue estimate of $177.92 billion for the fiscal year that ended December 2022 indicates a 56.1% year-over-year improvement. The consensus EPS estimate of $27.80 for the same year reflects a rise of 889.5% from the prior year. Furthermore, VLO surpassed its consensus EPS in all four trailing quarters.
The stock has gained 29.4% over the past six months and 60.7% over the past year to close the last trading session at $137.61.
VLO’s strong prospects are apparent in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
VLO also has an A grade for Momentum and a B for Growth, Value, and Quality. Within the Energy – Oil & Gas industry, it is ranked #3 of 92 stocks.
In addition to the POWR Ratings I’ve just highlighted, you can see VLO ratings for Stability and Sentiment here.
Adams Resources & Energy, Inc. (AE)
AE is involved in the marketing, transportation, and storage of crude oil and natural gas in and around the United States. Its segments include Crude Oil Marketing, Transportation, and Storage; Tank truck Transportation of Liquid Chemicals, Pressurized Gases, Asphalt, and Dry Bulk; and Pipeline Transportation, Terminalling, and Storage of Crude Oil.
On September 1, 2022, AE announced that its subsidiary, Service Transport Company, had opened its 20th terminal in Pittsburgh, Pennsylvania. With the opening of this new facility, Service Transport would be able to provide its clients with greater resources in the northeastern United States while opening up new revenue and profit-generating potential for the business.
AE’s forward EV/Sales is trading at 0.02x, which is 98.9% lower than the industry average of 1.86x. Also, the stock’s forward EV/EBITDA multiple of 1.93 is 64.7% lower than the 5.48 industry average.
For the fiscal third quarter that ended September 30, 2022, AE’s total revenues increased 50.1% year-over-year to $852.90 million, and its operating earnings rose 30.1% from the prior year’s quarter to $2.99 million. The company’s earnings before income taxes grew 48.7% from the year-ago value to $3.21 million.
In addition, the company’s net earnings stood at $2.19 million, a 41.7% increase year-over-year, while EPS stood at $0.50, up 38.9% from the prior year’s period.
The company pays a $0.96 per share dividend annually, translating to a 1.97% yield on the current price level. Its four-year average dividend yield is 3.21%.
Analysts expect AE’s EPS to increase 22.6% year-over-year to $3.37 for the fiscal year that ended December 2022. The company’s EPS for the current year (ending December 2023) is expected to rise 19% from the previous year to $4.01.
Shares of AE have gained 18.8% over the past month and 59.9% over the past year to close the last trading session at $48.70.
AE’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system.
The stock has an A grade for Momentum and Sentiment and a B for Value and Quality. Within the same industry, AE has ranked #7 of 92 stocks.
To see additional POWR Ratings for Growth and Stability for AE, click here.
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MPC shares were trading at $121.88 per share on Wednesday afternoon, up $0.11 (+0.09%). Year-to-date, MPC has gained 4.72%, versus a 2.88% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns. More...
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