Energy stocks Shell plc (SHEL), PBF Energy Inc. (PBF), and Adams Resources & Energy, Inc. (AE) could be ideal investments to capitalize on steadily increasing demand for oil and gas from Asian economies amid constrained supplies due to turbulent geopolitics. However, the prospects of Tellurian Inc. (TELL) don’t look as bright.

Before delving deeper into the fundamentals of each of these stocks, let’s take a look at what’s happening in the energy sector.

Saudi Aramco posted a record $161 billion profit for 2022, the largest ever by an energy firm. Much of this windfall is attributed to a rapid surge in energy prices in the first quarter of 2022, driven by solid demand and supply-side imbalances exacerbated by Russia’s invasion of Ukraine.

Closer to home, the redrawing of the global energy map and shifting geopolitical inclinations in the Middle East since the beginning of the conflict has been nothing short of a windfall for U.S. energy producers. The U.S. has “gone from (being) a very domestically focused market into an international powerhouse.”

Although oil and gas prices have retreated from their peaks due to macroeconomic uncertainties caused by inflation and high-interest rates, the reopening of China could create a multiplier effect that might take Brent crude to triple digits in the second half of this year, according to the forecast by Amrita Sen, founder, and director of Research at Energy Aspects.

In addition to growing Asian economies absorbing the bulk of the remaining supplies, Europe’s increasing reliance on American shipments and Russia’s announcement of a voluntary production cut of 500,000 barrels a day in response to Western sanctions increase the likelihood of price increases.

Moreover, as energy companies are treading carefully with the energy transition and, therefore, have been slow to reinvest the cash flooding in, most businesses are promising healthy shareholder returns.

Let’s take a closer look at the featured stocks.

Stocks to Buy:

Shell plc (SHEL)

SHEL, erstwhile The Royal Dutch Shell plc, is an international energy and petrochemical company headquartered in London, United Kingdom. The company’s businesses include Upstream, Integrated Gas, Renewables and Energy Solutions, and Downstream.

On February 28, SHEL completed the previously announced sale of its 100% interest in Shell Onshore Ventures LLC, which holds a 51.8% membership interest in Aera Energy LLC to IKAV. Aera Energy LLC, headquartered in Bakersfield, California, operates as an independent company that produces oil and associated gas from around 13,000 wells in San Joaquin Valley in California.

The total sale consideration is approximately $2 billion in cash, with additional contingent payments based on oil prices. While SHEL remains active in California, the sale is part of its strategy to create a resilient and competitive upstream portfolio by focusing on positions with high growth potential and a strong integrated value chain.

On February 20, SHEL announced the completion of the acquisition of 100% of the shares of Nature Energy Biogas A/S (Nature Energy), the largest producer of renewable natural gas (RNG) in Europe. This acquisition supports SHEL’s ambition to build an integrated RNG value chain globally and grow its low-carbon offerings to customers across multiple sectors profitably.

On February 16, SHEL announced the commencement of production at the Vito floating production facility in the US Gulf of Mexico (GoM). With an estimated peak production of 100,000 barrels of oil equivalent per day, Vito is the company’s first deep-water platform in the GoM to employ a simplified, cost-efficient host design.

On February 2, SHEL declared its dividend of $0.29 per share for the fourth quarter of the fiscal year 2022. In addition, it had completed $4 billion of share buybacks during the period. The company also announced a buyback program of another $4 billion due for completion by the result announcement for the first quarter of 2023.

During the fourth quarter of the fiscal year 2022, which ended December 31, 2022, SHEL’s total revenue and other income increased 12.2% year-over-year to $101.20 billion. During the same period, the company’s adjusted EBITDA increased 26% year-over-year to $20.60 billion, while its adjusted earnings grew 41.6% year-over-year to $9.81 billion. This translated to an adjusted EPS of $1.39, up 67.5% year-over-year.

SHEL has impressed by surpassing the consensus EPS estimates in each of the trailing four quarters. The stock has gained 11.2% over the past six months and 18.3% over the past year to close the last trading session at $59.10, comparable to its 50-day moving average of $59.60 and above its 200-day moving average of $55.01.

SHEL’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

SHEL has an A grade for Momentum and a B for Stability, Sentiment, and Quality. It is ranked #7 of 91 stocks in the B-rated Energy – Oil & Gas industry.

Click here for additional ratings for Growth and Value of SHEL.

PBF Energy Inc. (PBF)

As an independent petroleum refiner, PBF supplies unbranded transportation fuels, heating oil, petrochemical feedstocks, lubricants, and other petroleum products in the United States. The company operates in two segments, Refining and Logistics.

On February 16, 2023, Eni Sustainable Mobility and PBF announced their entry into a definitive agreement to partner in a 50-50 joint venture, St. Bernard Renewables LLC (SBR), for the biorefinery currently under construction co-located with PBF’s Chalmette Refinery in Louisiana. Eni would contribute capital of $835 million plus up to an additional $50 million subject to the achievement of eventual project milestones and will provide expertise in biorefining operations, supply, and marketing.

The St. Bernard Renewables biorefinery startup is scheduled in the first half of 2023, and the facility is currently targeted to have a processing capacity of about 1.1 million tonnes/year of raw materials, with full pre-treatment capabilities. It will produce mainly HVO Diesel (Hydrotreated Vegetable Oil, commonly known as ‘renewable diesel’ in North America), with a production capacity of 306 million gallons per year.

Also, on February 16, PBF announced its quarterly dividend of $0.20 per share of Class A Common stock, payable on March 16, to shareholders of record at the close of business on March 1, 2023. This reflects the company’s capability to return capital to shareholders even in a cash-strapped economic environment marked by rising interest rates.

On February 3, PBF Logistics LP, an indirect subsidiary of PBF, redeemed $525 million in aggregate principal amount outstanding of its 6.875% Senior Notes due 2023, plus accrued and unpaid interest to the date of redemption. This redemption reflects the company’s ability to service debt and would ensure an improved bottom line with a reduced balance sheet.

On December 12, 2022, PBF announced that its board of directors had authorized the repurchase of up to $500 million of PBF Class A common stock. Repurchases would be made from time to time through various methods, including open market transactions, block trades, accelerated share repurchases, privately negotiated transactions, or otherwise, depending on the discretion of the management.

While signaling the confidence of the company’s management in its prospects, this repurchase program would also increase the intrinsic value of the holdings of the existing shareholders.

For the fourth quarter of the fiscal year that ended December 31, 2022, PBF’s revenues increased 31.6% year-over-year to $10.85 billion. During the same period, the company’s adjusted EBITDA and income from operations increased 145.2% and 228.3% year-over-year to $1.04 billion and $955.60 million, respectively.

PBF’s adjusted fully-converted net income (excluding special items) for the quarter came in at $582.90 million and $4.41 per share, representing an increase of 271.7% and 244.5% year-over-year, respectively.

Analysts expect PBF’s revenue for the first quarter of the fiscal year 2023 to be $8.62 billion, while its EPS is expected to increase almost eightfold compared to the previous-year quarter to $2.79.

The stock has gained 31.4% over the past month and 80.5% over the past year to close its last trading session at $41.29, above its 200-day moving average of $37.78.

PBF has an overall B rating, translating to Buy in our POWR Ratings system. The stock has an A grade for Value and Momentum and a B for Growth and Quality. It is ranked #10 of 91 stocks in the Energy – Oil & Gas industry.

Click here to access additional POWR Ratings for Stability and Sentiment for PBF.

Adams Resources & Energy, Inc. (AE)

AE is primarily involved in the marketing, transportation, terminal ling, and storage of the various crude oil and natural gas basins in the United States. The company operates through three segments: 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 February 21, AE declared its quarterly cash dividend of $0.24 per common share, payable on March 24, 2023, to shareholders of record as of the close of business on March 10, 2023. The company pays $0.96 annually as dividends, which translates to a yield of 2% at the current price. Dividend payouts have grown at 1.8% CAGR over the past five years.

On November 1, 2022, AE announced the repurchase of all the shares of AE common stock owned by KSA Industries, Inc., the company’s largest stockholder, and members of the family of the late Kenneth Stanley Adams, Jr., the company’s founder, who are affiliated with KSA.

With this transaction, AE made a significant return of capital to its existing shareholders and increased the intrinsic value of their stake in the company.

For the fiscal 2022 third quarter ended September 30, AE’s total revenues increased 50.1% year-over-year to $852.90 million. The company’s operating earnings rose 30.1% from the year-ago value to $2.99 million. In addition, its adjusted net earnings came in at $4.71 million and $1.06 per share, up 168.6% and 158.5% year-over-year, respectively.

Analysts expect AE’s revenue for the fiscal year 2022 (ended December 2022) to come in at $3.46 billion, representing a 70.4% rise from the last year. Also, Street expects the company’s EPS for the same period to come in at $3.37, representing an increase of 22.6% year-over-year. It is expected to increase by a further 19% to $4.01 during this fiscal year.

AE’s stock has gained 71.6% over the past six months to close the last trading session at $49.25, above its 200-day moving average of $38.08.

AE’s overall rating of B translates to a Buy in our POWR Ratings system. It has an A grade for Momentum and Sentiment and a B for Quality and Value.

AE is ranked #15 in the same industry. Get additional ratings for AE’s Growth and Stability here.

Stock 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, 2022, 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.

Given the progressively increasing borrowing costs, shortly after, on September 23, TELL announced an update to its financing strategy for Driftwood LNG to prioritize securing equity partners.

For the fiscal year that ended on December 31, 2022, TELL reported a net loss of $49.81 million and $0.09 per share. The company’s total current and long-term liabilities stood at $297.54 million and $456.60 million, respectively, as of December 31, 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 38.1% year-over-year to $90.91 million. The company’s loss per share is expected to widen 14.3% year-over-year to $0.16. For the entire fiscal year, TELL’s revenue is expected to decline 5.3% year-over-year to $371.25 million, while its loss per share is expected to widen 180.6% year-over-year to $0.25.

The stock has slumped 33% over the past month and 70.7% over the past year to close the last trading session at $1.18, below its 50-day and 200-day moving averages of $1.73 and $2.85, respectively.

TELL’s bleak outlook is also reflected in its overall F rating, which translates to a Strong Sell. It is also rated an F for Quality and Stability and a D for Sentiment and Value.

Unsurprisingly, TELL is ranked last in the same industry.

Click here for additional POWR Ratings for Growth and Momentum of TELL.

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SHEL shares were trading at $60.08 per share on Tuesday afternoon, up $0.98 (+1.66%). Year-to-date, SHEL has gained 6.48%, versus a 2.53% 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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