The COVID-19 outbreak triggered an unprecedented demand shock for crude oil, resulting in a 40% decline in price in the first quarter of 2020. This collapse was further intensified by a short-lived, yet aggressive, Saudi Arabia-Russia price war. However, prices started picking up strongly mid-year as optimism grew around a COVID-19 vaccine. Moreover, on the supply side, the OPEC+ alliance came to a settlement and implemented production cuts and several other actions to curb oil price volatility.
While the global clean energy drive is a potential threat to this industry, the demand for crude oil and energy is expected to hold steady in the near future because governments around the world are completely focused on economic revival, placing clean energy initiatives on the back burner for now.
As a result, we think small-cap oil and gas companies like QEP Resources, Inc. (QEP) and Genie Energy Ltd. (GNE), which are currently working on reducing their carbon footprints, could deliver substantial gains in the near term.
QEP Resources, Inc. (QEP)
Focused primarily on Texas and North Dakota, QEP is an independent crude oil and natural gas exploration and production company. The company has a $722.54 million market-cap, and sells oil, condensate, gas, and natural gas liquids to wholesale marketers, industrial users, local distribution companies, refiners and utilities.
On December 21 QEP announced that it had entered o an agreement under which Diamondback will acquire QEP in an all-stock transaction valued at approximately $2.2 billion. The strategic merger with Diamondback is expected to lead to operational synergies and deliver capital efficiencies beyond what each company could achieve independently.
QEP’s total revenues have increased 47.4% sequentially to $177.8 million in the third quarter ended September 30, 2020. Its adjusted EBITDA has risen 2% from the prior quarter to $160.4 million, while its adjusted net profit improved 183.6% year-over-year to $31.2 million over the same period, yielding an adjusted EPS of $0.13.
During the quarter, the company also received a $170.70 million tax refund, which enabled it to redeem its 2021 senior notes five months ahead of their due date. The senior notes redemption will help QEP strengthen its balance sheet and improve liquidity. Moreover, since January 2019 QEP has reduced its outstanding debt by more than $900 million through a combination of free cash flow generation, tax refunds and asset divestiture proceeds.
Analysts expect QEP’s EPS to rise at a CAGR of 71.9% over the next five years. A consensus EPS estimate of $0.05 in the about-to-be-reported quarter (ended December 31, 2020) represents a 150% improvement from the year-ago value. The stock has gained 103.9% over the past six months.
QEP’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our rating system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
QEP has a grade of B for Value, Sentiment and Quality. It is ranked #5 of 100 stocks in the Energy – Oil & Gas Industry.
In total, we rate QEP on eight different levels. Beyond what we stated above, we also have given QEP grades for Momentum, Stability, Growth and Industry. Get all the QEP ratings here.
Genie Energy Ltd. (GNE)
GNE, with a market capitalization of approximately $204 million, is a retail energy provider, and an oil and gas exploration company. The company operates through four segments: Genie Retail Energy; GRE International; Genie Energy Services; and Genie Oil and Gas, Inc. It resells electricity and natural gas to residential and small business customers. The company also engages in the provision of energy advisory and brokerage services, solar panel manufacturing, and solar installation design and project management activities.
On December 16, GNE announced a joint venture with Community Power Partners to provide customer aggregation and management services to New York’s independent solar power producers. The partnership is expected to offer a comprehensive package of benefits to community solar producers.
GNE’s total revenues have increased 12.4% year-over-year to $96.3 billion in the third quarter ended September 30, 2020, driven primarily by increases in average electricity consumption in the U.S. and internationally. Its adjusted EBITDA has risen 18.6% from the year-ago value to $9.5 million, while its net income improved slightly to $6.4 million over the same period, yielding an EPS of $0.24. Moreover, the company’s international meter acquisitions led the expansion of its global customer base to the highest level. GNE’s global customer base increased 15% year-over-year, driven by its investment in customer acquisition and complemented by more modest domestic RCE growth.
Analysts expect GNE’s revenues to grow 8.8% year-to-year to $343.10 million in the fiscal 2020 ended December 31. The stock has gained 2.8% over the past year.
GNE’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which equates to Buy in our POWR Ratings system. GNE has a grade of B for Value, Growth and Quality. It is currently ranked #1 of 100 stocks in the same industry.
In total, we rate GNE on eight different levels. Beyond what we stated above we have also given GNE grades for Momentum, Stability, and Sentiment. Click here to get all the additional POWR Ratings for GNE.
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QEP shares fell $0.08 (-2.35%) in after-hours trading Monday. Year-to-date, QEP has gained 42.26%, versus a 4.45% rise in the benchmark S&P 500 index during the same period.
About the Author: Rishab Dugar
Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands. More...
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