Natural gas prices have more than tripled in Europe and Asia, reaching record highs this year. The benchmark U.S. natural gas contract has rallied to $5.62 per million British thermal units (mmBtu), reaching seven-year highs. 

Analysts expect the upcoming winter season to lead to further price increases. In addition, the floating liquefied natural gas (LNG) market is expected to grow at a CAGR of 6.1% between 2021 and 2025 to $4.68 billion.

Given this backdrop, fundamentally sound natural gas stocks, Western Midstream Partners, LP (WES), APA Corporation (APA), and PDC Energy, Inc. (PDCE) are expected to continue to see gains in the near term.

Western Midstream Partners, LP (WES)

WES is a midstream asset development and operation company. The company primarily focuses on gathering, processing, and transporting condensed natural gas and its buying and selling.

In the second quarter, WES entered into a long-term gas gathering and processing agreement with an independent energy company, Crestone Peak Resources, pledging the latter’s Watkins acreage for WES’s gas gathering system. This partnership should improve WES’s operational capabilities.

In the fiscal second quarter ended June 30, WES’s total revenues increased 7.1% year-over-year to $719.13 million. This can be attributed to a rise of 232.4% from the prior-year quarter to $72.26 million in product sales. For the six months ended June 30, the cash and cash equivalents balance stood at $305.57 million, up 411.5% year-over-year.

Analysts expect its EPS to increase 91.5% year-over-year to $2.26 in the current year (fiscal 2021). Likewise, the consensus revenue estimate of $2.91 billion for the ongoing year indicates an improvement of 4.8% from the prior year. The stock has gained 179.1% over the past year to close yesterday’s trading session at $22.30. It has also gained 61.4% year-to-date.

WES’s strong fundamentals are reflected in its POWR Ratings. 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, with each factor weighted to an optimal degree.

WES has a Momentum, Stability, and Quality grade of B. In the 38-stocks MLPs – Oil & Gas industry, it is ranked #5. This industry is rated B.

In addition to the POWR Rating grades we’ve stated above, one can see WES ratings for Growth, Value, and Sentiment here.

APA Corporation (APA)

APA operates as an oil and gas exploration company with operations in the United States, Egypt’s Western Desert, and the United Kingdom’s North Sea. The company also operates explorations in Suriname. In 2021, Apache Corporation came under APA in a holding company structure.

On September 20, APA raised its quarterly dividend from 2.5 cents per share to 6.25 cents per share, payable on November 22 this year. About this increment, John J. Christmann IV, APA’s CEO and President said, “We have confidence in the quality of our underlying core assets and the long-term sustainability of their free cash flow generating capacity. We look forward to demonstrating that to the market and to further increasing the dividend as we continue to make progress on debt reduction.”

For the second fiscal quarter ended June 30, APA’s total revenues increased 133.5% year-over-year to $1.76 billion. Adjusted earnings after tax and adjusted EPS stood at $266 million and $0.70, respectively, up substantially from their negative year-ago value. Adjusted EBITDAX increased 330.2% year-over-year to $1.01 billion.

Street EPS estimate of $0.94 for the ongoing quarter (ending December 2021) reflects a 1980% year-over-year increase, while Street revenue estimate of $1.69 billion for the current quarter indicates a rise of 31% from the prior-year quarter. Moreover, APA has an impressive earnings surprise history as it has topped consensus EPS estimates in each of the trailing four quarters. APA’s stock has gained 126.5% over the past year and 55.5% year-to-date to close yesterday’s trading session at $22.06.

It’s no surprise that APA has an overall rating of B, which translates to Buy in our POWR Ratings system. The stock also has an A grade for Momentum and Quality, and a B grade for Growth and Value. It is ranked #3 out of the 90 stocks in the Energy – Oil & Gas industry.

To see the additional POWR Ratings for Stability and Sentiment for APA, click here.

PDC Energy, Inc. (PDCE)

PDCE operates as an independent exploration and production company, developing unconventional oil and natural gas resources, focusing mainly on the Wattenberg Field in Colorado and the Delaware Basin in West Texas.

On October 4, PDCE announced the redemption of its 6.125% Senior Notes due 2024 on November 3, 2021. This should reduce the company’s debt burden significantly.

In the second fiscal quarter ended June 30, PDCE’s total revenue increased 320.6% year-over-year to $228.87 million. Adjusted EBITDAX rose 80.5% from the prior-year quarter to $358.30 million, while adjusted EPS increased 1,085.7% from the same period last year to $1.66.

The consensus EPS estimate of $1.77 for the current quarter (ending December 2021) indicates a 60.9% year-over-year increase. Likewise, the consensus revenue estimate of $559.13 million for the ongoing quarter reflects a rise of 100.7% from the prior-year quarter.

The stock has gained 295.6% over the past year to close yesterday’s trading session at $46.28. PDCE has also gained 125.4% year-to-date.

PDCE’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.

PDCE has a Momentum grade of A, and a Growth and Quality grade of B. It is ranked #6 in the Energy – Oil & Gas industry. Click here to see the additional POWR Ratings for PDCE (Value, Stability, and Sentiment).

WES shares were trading at $22.16 per share on Tuesday afternoon, down $0.14 (-0.63%). Year-to-date, WES has gained 68.93%, versus a 16.97% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

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